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The quandary some investors face

Despite a recent rise in loan applications, Christchurch-based Gold Band Finance is seeing people committed to buying investment properties they probably no longer want to buy.

By: Sally Lindsay

29 December 2023

Gold Band Finance’s chief executive, Martin Brennan, says some investors entered contracts months ago, but the market has moved, and they are being forced to settle.

A combination of factors has led to this situation, he says. Interest rates went up, property prices went down. “In other words, the house bought for say $10, is now worth $8, which obviously leads to impairment. Those investors are staring down a loss of value and an increase in funding costs. In a lot of cases, they can’t get funding because the asset values have gone down.

“It’s a challenge. A lot of people are having to settle on them and are selling them straight away. Some will sell for a loss; it depends on the circumstances.”

It’s one reason Gold Band Finance has given up on doing Credit Contracts and Consumer Finance Act (CCCFA) loans. “They are just too hard and an operational risk when there is legislation saying directors can be personally liable for any non-compliance.”

Big issue

Directors and senior managers may be personally liable, with penalties of up to $200,000 and/or court ordered damages or compensation. 

He says the legislation was done with good intentions, but when ambiguous laws are passed its problematic. The act does not tell lenders how much borrowers can commit to servicing a loan; they have to make their own assessments and it’s a big issue.

Gold Band used to have a consumer loan book of about $10 million, but it now mainly does non-CCCFA loans. Brennan’s question is where are those people borrowing money from now?

Many industry pundits believe it’s from rogue lenders charging high interest rates – the type who the National Party said before the election should be targeted in rewritten legislation aimed at protecting vulnerable consumers without unnecessarily limiting access to credit.

Although tweaks were made to the legislation by the previous Labour government, Brennan says Gold Band still has reservations and will wait to see how the new government rewrites the CCCFA.

Gold Band has found loan demand this year the strongest it has probably been in the past three or four years for CCCFA and non-CCCFA lending. It’s not around budget, he says. “I think it’s about a psychology. I’ve talked with people who just think the change in government will lead to a change in culture that will make for a better environment. I don’t think people are waiting for a specific piece of legislation or something like that, it’s more a psychological view.”

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