May is virtually here already, and so it seems that the year is moving along at a pace. It continues to be a very interesting trading environment for everyone, regardless of sector. So what are we seeing?
Inflation and cost of borrowing increases. These are the two things that are currently dominating our landscape.
But, how is this impacting Zagga and our investors / borrowers?
Starting with the cost of borrowing. With OCR increases, and a genuine slow down in the main trading banks’ funding, there is simply less capital readily available. And what is there is now more expensive. As a result, over the course of the last 6 months we have seen a steady increase in the cost of borrowing. We are also seeing that a large number of extremely credit-worthy borrowers looking for finance for totally acceptable purposes (with great property as security and low LVR’s) are currently struggling to find finance. Again, this all serves to push prices up. Tough for borrowers obviously, but clearly provides an opportunity for investors to increase their return which, with inflation where it is, provides welcome relief.
Inflation – it is certainly high. So, we are finding that those investors who are used to investing in Zagga loans are tending to want to keep their money in loans. They like the increasing returns they are getting and the fact that it is keeping them well ahead of inflation, and providing a monthly income. This seems to be ensuring that we are finding new investors eager to invest in loans every day. It has meant that there is a little more concern, particularly when investing into anything construction related, that the borrower they are investing in has sufficient contingency built into a loan to manage escalating costs. But, we are certainly mindful of this also, and so too our borrowers seem accepting of this requirement.
While all of this meant that there was a little bit of investor uncertainty a month or so ago, this uncertainty seems to now have been reduced with a strong appetite to get into 12-month loans where the LVR is not too high. So, confidence in the underlying asset (1st mortgages over NZ property) seems to still be there.
Regardless, it is a very interesting time for the market and I am sure that we will continue to see twists and turns before 2022 is out.
As ever, feel free to reach out if you have questions.