A year of two halves for non-bank sector

William Cairns

In its end of year mortgage commentary, General Finance says that while the first part of 2016 was quiet with relatively few mortgage applications, things picked up in August around the time that banks tightened lending criteria. "So when banks tighten up there's so few of us left and we can't pick up the slack" says executive director William Cairns.

The increased demand has led to some second tier lenders running low or even out of money according to some industry sources. "There's definitely people hitting their funding caps, and also their risk appetite might have dipped a wee bit with the banks pulling back" according to Nigel Staples at Cressida Capital.

One consequence is rising interest rates as banks seek more expensive funding offshore and the second-tier lenders compete for money which has drifted into funds management, or the sharemarket and property. With five-year fixed mortgage rates already nudging six per cent, General Finance predicts that mortgage rates will increase as competition for funds hots up.

On the positive side, General Finance has been able to "pick and choose" what it lends on and there's been a corresponding decline in arrears. Cairns says "we're being a lot more fussy on the deals we write, a lot stricter, and so we're writing much better quality stuff."