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Chartering The Market Winds

An Auckland-based mortgage lending firm has shared its compass for the next 12 months.

By: Sally Lindsay

5 February 2024

Finbase, New Zealand’s only real estate-led, first mortgage lending firm, has five predictions for lenders and borrowers this year.

1. The OCR will drop: The lender says the OCR is likely to drop following the RBNZ’s April review, as recent data subtly indicates a recession. Inflation rates are predicted to stabilise at or below 5 per cent, offering room for further interest rate cuts. “This adjustment is all but certain, and it will reflect a strategic response to the economic landscape,” says Finbase managing director Pernell Callaghan.

2. Modest growth in property prices amidst economic recovery: With the easing of the OCR, consumer confidence in property investment is likely to grow. However, Finbase forecasts a restrained property price increase of 5-7 per cent across this year. “While the market shows signs of recovery, the actual financial gains for property investors will be marginal when considering the increase in the costs of rates, insurance and maintenance,” Callaghan says.

3. Stricter debt servicing requirements will impact investors: Debt servicing remains a significant hurdle for prospective property investors, especially in the bank lending sector. “Net cash flows for investors are weak, often tipping into the negative,” Callaghan says. “Those in need of funding, especially those unable to gain it from banks, will look to other sources. To mitigate risk, businesses who provide alternative access to streams of capital, such as first mortgage lending, will need to focus their due diligence on both the borrower and the realisable underlying value of the security.”

4. Focus on cashflow-generating assets: Investors increasingly recognise the value of, and have a desire for, investments that generate steady cash flow, as opposed taking on more risk in the property market. They will divest from their property portfolios, a departure from the pre-2022 focus on capital gains.

5. Refinancing trends and fixed rate projections: Finbase says there has already been a significant refinancing trend among investors seeking to downsize their property portfolios, particularly those with main bank lending. Banks are increasingly demanding full repayment from property sales. The lender predicts the main banks’ one-year fixed rates will be about 6.7-6.9 per cent by December this year.

“Since net yields and growth in property are not matching alternative investments like private debt, NZX50 and S&P500, we’re seeing larger commercial property investors scaling down. In a scenario where bank financing becomes cheaper and more accessible, we might see a sharp rise in property prices, but that seems very unlikely,” Callaghan says.

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