Well it certainly has been an amazingly interesting and fundamentally challenging 2021. While we all hoped that the worst of it would come in 2020, particularly when the arrival of the vaccine was being heralded last December, it quickly became obvious that there would be no quick fixes. So, despite starting the year with a sense of being under control, we learnt to expect the unexpected and then found ourselves back in lockdown needing to hope for a swift roll-out of the vaccine. Unlike many other countries that became more familiar to rolling lockdowns and spiking case numbers, we likely became a little hopeful of some kind of ongoing normality due to an effective border control strategy. Unfortunately, this was seemingly never more than a time-buying exercise and so we likely fostered greater uncertainty than we otherwise might have had.
As a result of this, I believe, we have seen a large amount more uncertainty in the market. The NZX declined 6.6% over the last five weeks, and is sitting at positive 1% only for the year (where other countries have had significant growth over the last 12 months). Inflation has started to climb, unemployment has been exceptionally low with people less willing to move / change jobs, and the housing price boom has continued to steam along. As a result of all of this we are now expecting to see relatively consistent Official Cash Rate increases over the coming year (and beyond) which will push interest rates back up. How far all of this will go is really anyone’s guess, but if we take a ‘direction of travel’ assessment of it all then it seems likely that for the next 2 – 3 years we will continue to see upward pressure on rates.
In addition to all of the above, we have seen a massive decline in the main trading banks’ overall willingness to lend over the last 12 months. And more recently we are seeing a significant decline in available credit in the second tier lending sector. All of this means that there is far less capital available to the market. We have been noticing our application for loans increase massively over the last four weeks in particular and this is showing little sign of abating. Many of these deals, and certainly the ones we are willing to look at, are genuinely high quality deals that would have either been snapped up by the main trading banks or the second tier previously. The great thing for us, and our database of mum & dad investors, is that we can cherry pick these deals and ensure that the rates of return are more than fair for the risk associated with the deals.
In terms of our investor pool, we are consistently hearing that there is a preference for 6-month deals at the moment. However, many still like the certainty of locking in a return for 12-months when it is clear that a deal and the underlying security are high quality. Many of our investors have been enjoying the slightly higher interest rates over the last month, and have shown a willingness to take larger pieces of investment opportunities. A large proportion of our investor base also invest directly in properties, and have indicated that they remain very confident about property values in the main centres in NZ. There seems to be a general consensus that a cooling of the property market is more than likely to mean a plateauing of prices or perhaps a small amount of retraction to the vales of 6 – 12 months ago, rather than anything more significant. Suffice to say, if a loan has 69% LVR or lower, it seems to be snapped up on the platform at present.
Finally, we have had a large number of requests for feature changes within the Zagga platform over the last 12 months. We have listened to all of this, and are looking forward to being able to announce a very significant number of changes and enhancements over the coming month or so. We believe these changes will signal a massive step forward in how borrowers apply for loans, and, importantly, how investors invest in loans and manage their Zagga portfolios. I am really excited to be able to tell you more about all of this very soon.
As always, thank you for the support you show Zagga. Please feel free to reach out if you have questions or would like a little more assistance navigating the investment opportunities that are made available to you. The team are all here and keen to help!