SCP's conservative lending strategy to weather market conditions

Trade Me’s listings from November 2022 to January 2023 reflect the first three-month period where house prices have fallen year-on-year. However, QV’s latest figures show house prices are still 24.5% higher than when Covid first hit in March 2019. We look at what this means for SCP’s loan strategy and how it impacts what we lend on.

It’s not hard to find stories of economic uncertainty right now, whether it’s in news headlines, on social media, or at dinner table conversations. New Zealand’s property market is changing as inflation increases along with interest rates hikes and increased cost of living.

A recent survey conducted by Trade Me found only a fifth of people searching for property on the site intended to purchase this year. Most respondents view the market as a bad time to buy with rising interest and mortgage rates, and inflation being key deterrents. However, there are still people out there looking for a well-priced property to buy.

Trade Me’s listings from November 2022 to January 2023 reflect the first three-month period where house prices have fallen year-on-year. However, QV’s latest figures show house prices are still 24.5% higher than when Covid first hit in March 2019.

The national house price average dropped below $1m to $920,366 year-on-year in February 2023. For comparison, the national house price average in February 2020 was $722,475. With market turbulence not looking to ease any time soon, we’re using this to inform our strategy to ensure we’re securing quality loans for our investors.

Luckily for us, we’re specialist lenders who know what types of loans work for us, and we lend on them alone. Being conservative lenders, our core strategies remain the same, regardless of the state of the market:

• We use conservative loan-to-value ratios (LVRs). We like to ensure our borrowers have more equity than what banks generally require. We lend on a maximum LVR of 65%, meaning we need borrowers to have at least 35% equity to account for any market headwinds.
• We have stringent market valuation methods. The amount SCP will lend a borrower depends on a property’s value. When faced with two different valuations, we always choose the lower one and lend on that. We prefer to use a registered valuation (RV) or a comparative market analysis (CMA) for accuracy and in most cases require a recent valuation which reflects current market conditions. We may also visit the property and meet the borrower for added reassurance.
• We lend our own money first. We put our money where our mouth is and ensure the borrower receives funds from SCP before putting the loan on the portal for investors to invest in.

At Southern Cross Partners we have been lending on property for more than 25 years. No matter the market conditions, Southern Cross Partners will always be a conservative lender.

The investor portal holds all this information in the details section for each investment opportunity. If you have further questions about any specific opportunities or want to further understand how market conditions can impact our loans, please get in touch with our friendly investor team.