Basecorp sees strong market for non-banks

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The future looks bright for non-banks in New Zealand as advisers increasingly turn to these lenders against a background of tighter finance rules and a deflating, credit-fuelled pandemic property market

NON-BANK lender Basecorp Finance has the wind in its sails as 2022 shapes up to be a pivotal year for the sector. The company is fresh from settling a third residential mortgage-backed transaction of $300m in May, while market dynamics are swinging in behind non-banks as they gradually expand their profile in New Zealand. Basecorp head of lending Craig Rolls is particularly pleased with the new funding, which follows on from two $250m transactions in 2021. “This leaves us well funded for the remainder of 2022 and will allow us to maintain that consistency at a time where funding markets, particularly for non-banks, are significantly more challenging than in recent years,” he says.

Basecorp Finance is a non-bank mortgage lender in operation since 1997 and is headquartered in Hamilton, New Zealand. Basecorp has a loan book of more than NZ$1bn and is one of the leading non-banks owned and operating in New Zealand. Its core product offering is made up of primarily long-term (and some short-term) first-ranking residential mortgages to consumer and non-consumer clients. It aims to finance “everyday Kiwis into residential housing” and has a highly experienced team of 15 with a proven track record in managing credit risk through many economic cycles. Basecorp originates more than 90% of its loans through adviser channels.

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“The benefit of advisers and the solutions and support they can offer has become increasingly apparent”

Craig Rolls, Basecorp Finance

In terms of market dynamics, he notes that three trends are all pushing the non-bank sector towards a more prominent role over the next few years. The first is the increasing use of non-bank mortgage options. Rolls says that while the overall share of the system remains low for non-banks, annual growth rates have risen significantly since early 2021 and are well above comparable growth rates at regular banks. “New Zealand is fortunate to have a number of very strong non-bank mortgage lenders operating in the short-term and long-term space,” he says. “Basecorp complements the offering of these non-banks with a couple of key differences.” These include consistent 24- to 48-hour turnaround times, a flat lending structure with the ability to speak directly to key decision-makers, competitive pricing and a flexible lending policy.

“That flexibility allows us to look at the merits and risk of deals as a whole in our assessment,” Rolls says. A second market trend boosting business is the increasing use of mortgage advisers around New Zealand. Basecorp derives over 90% of its loans through adviser channels, which means it gets an outsize impact from more borrowers opting to use that route for securing finance. Rolls says this isn’t surprising given how difficult it is for individuals to stay abreast of the market these days.

“Navigating the complexity of some of the new regulations has become increasingly difficult for borrowers, and the benefit of advisers and the solutions and support they can offer has become increasingly apparent,” he says. “We’re now seeing banks’ use of advisers tipping over 50%, and as a lender who almost exclusively uses advisers, this has only helped us with our own growth.” A third factor has been the increasing difficulty of obtaining finance in the marketplace as a result of bank practices and government regulation – including the tightened finance restrictions imposed by changes to the Credit Contracts and Consumer Finance Act in December. “Other regulatory changes, including debt-to-income ratios now in place at some of the banks; the staggered removal of interest deductibility; RBNZ speed limits restricting loans above 60% for investors and 80% for owner-occupiers; and changes to bank capital requirements to be progressively implemented through the next few years have all had a significant effect on the market,” says Rolls.

Throw in COVID dampening consumer appetites, a global stock meltdown, supply chain problems, inflation at record levels, rising interest rates and geopolitical concerns. “It really is understandable why the housing market is under such pressure.” Rolls says that while Basecorp is a property lender, the impact has been seen across all borrowing segments of the market, including unsecured finance, auto finance and property finance. With access to credit becoming so difficult at banks, this has driven borrowers into the arms of non-banks, which have an important role to play in this new normal. Basecorp’s floating rates have become more competitive with overall bank rates, which has boosted its appeal. “We’re now 1% or thereabouts away from bank floating rates, and when you combine this with the other advantages of dealing in the non-bank space, more and more advisers are beginning to learn about and embrace the non-bank channel,” says Rolls. Basecorp is well placed to ride the wave of uncertainty and has taken on new staff recently to deal with the uptick in work. The Hamilton-based firm has a loan book of more than $1bn and a well-established niche in the market.

“We see continued growth for ourselves and the broader non-bank industry through the end of 2022, despite the slowdown in the overall property market”

Craig Rolls, Basecorp Finance

“Our book has historically had strong 60-plus-days arrears levels below 1% and we think is well positioned to withstand that pressure,” says Rolls. “And for those borrowers that are really struggling or whose circumstances change, we will act responsibly to help them meet their commitments.” Basecorp’s game plan is essentially to stick to its knitting and encourage borrowers to do the same with its support. Rolls says the continued focus will be on funding, turnaround times and expanding the lender’s footprint in the adviser community – all of which are already in motion.

“We see continued growth for ourselves and the broader non-bank industry through the end of 2022, despite the slowdown in the overall property market.” While there is considerable momentum towards more business deriving from mortgage advisers, it isn’t something that Rolls takes for granted. Basecorp tries to keep things straightforward for advisers as the market is complex enough without having to deal with obscure processes, he says. “Our products are easy to understand, letters of offer brief and conditions reasonable, and we have kept our risk-based pricing in a very narrow range.” Rolls says the continued success of the company stands to benefit the local Waikato community, where Basecorp has active grassroots partnerships with three local charities that focus primarily on improving outcomes for children and youth. Around one in six children live below the poverty line in the Waikato, and the number of young people (aged 15–24) who are not in employment, education or training is higher than the national average. “We can’t wait to expand these partnerships in the coming years,” says Rolls.

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$5.52bn

$11.55bn

$6.02bn

$3.82bn

MARCH 2022

MarCH 2021

$10.11bn

$6.29bn

Housing

Housing and personal consumer

$7.66bn

$6.79bn

Business

Personal consumer

Source: Reserve Bank of New Zealand sector lending (C5) data, Apr 2022

Value of non-bank lending by sector

34%

28%

40%

April 2022

April 2021

36%

Mortgage loans

Consumer finance

Source: Centrix April 2022 Credit Indicator and Economic Forecast Report

Consumer loan conversion rates by finance type

$5.52bn

$11.55bn

$6.02bn

$3.82bn

MARCH 2022

MarCH 2021

$10.11bn

$6.29bn

Housing

Housing and personal consumer

$7.66bn

$6.79bn

Business

Personal consumer

Source: Reserve Bank of New Zealand sector lending (C5) data, Apr 2022

Value of non-bank lending by sector

$5.52bn

$11.55bn

$6.02bn

$3.82bn

MARCH 2022

MarCH 2021

$10.11bn

$6.29bn

Housing

Housing and personal consumer

$7.66bn

$6.79bn

Business

Personal consumer

Source: Reserve Bank of New Zealand sector lending (C5) data, Apr 2022

Value of non-bank lending by sector

34%

28%

40%

APRIL 2022

APRIL 2021

36%

Mortgage loans

Consumer finance

Consumer loan conversion rates by finance type

34%

28%

40%

APRIL 2022

APRIL 2021

36%

Mortgage loans

Consumer finance

Consumer loan conversion rates by finance type