Much of the comment and discussion around rising interest rates has centred on lending and whether the increases will slow the housing market down.
What’s been over-looked a little is the impact on investors, particularly those in the finance company sector.
The obvious point is that rates being offered to investors are increasing. Readers who follow depositrates.co.nz will have seen our commentary on the changes here.
The other piece of the equation is what finance companies and the like do with the money they raise from investors.
I have heard talk that now that to generate the income needed to fund the rates on offer, lending rates have also had to increase. They are reaching levels where potential lenders are saying no. They are too high and make projects uneconomic. And for the lender the risk premium has become too high.
One gentleman, whose company runs a fund in this space, even suggested that because rates are so high the future of his vehicle was starting to look marginal. Essentially, the fund couldn’t lend money at a high enough rates to generate the returns promised to investors.
Time will tell whether this happens or not. There is the option to tough it out through the top of the interest rate cycle. Nice idea, but it looks like we will be on the peak for some time.
Maybe this situation is one reason why many of the finance companies have such high amounts of cash on hand? Just a theory.
PS: As mentioned at the top of this Blog the focus of rate rises is to slow the housing market. To see what is happening with prices in your area go to landlords.co.nz and check out the housing stats section. Here you can graph and compare house prices in regions all around New Zealand.
