GE talks of the difficulty in NZ mortgage market

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New Zealand's largest non-bank finance group has spoken about the difficulties of doing business here in the current market conditions.

Friday, July 25th 2008, 5:17AM

by Maria Scott

John Grant, director of business GE Money Home Lending New Zealand, said that the market remained extremely competitive and that it was difficult to make profits.

Grant said that the structure of the fundamental lending model in New Zealand – the price of mortgage versus the cost to lenders - was questionable. Asked whether GE would remain in the New Zealand market Grant said the company was committed but was constantly reviewing the "shape and form" of its operations.

"There is no point operating in market where you don't make any money."

GE specialised in lending to people who might not obtain loans from the banks and Grant said that he saw potential in this area following the withdrawal of a number of other lenders. GE had launched a product that was open to people with current credit problems.

The company has also decided on a change in distribution strategy; it is to concentrate its resources on relationships with non-bank lenders rather than dealing direct with mortgage brokers.

Grant said that GE would still deal with brokers but to have supported the broking industry fully would have required an increase in resources in this area. Lenders such as Cairns Lockie and Pioneer - who sell through brokers - already had established business development operations.

"We had to reach a decision about whether to scale up in that area where we would effectively complete with our wholesale people," said Grant.

Last year GE had hoped that it could pick up more business from brokers as the mainstream banks cut broker commissions but Grant said that the market had changed dramatically since then.

"What's happened in the last six months has highlighted what a difficult market New Zealand is to operate in. "Margins are so thin."

He said that the mainstream banks were effectively pricing below economic levels.

Speaking soon after the Reserve Bank of New Zealand cut the Official Cash Rate to 8%, Grant said that GE would watch the market reaction before making any decision on its lending rates.

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