New Zealand Lender Sentiment Survey Q2 2023

Twenty onshore and offshore lenders who are active in the New Zealand commercial property debt market participated in the survey. The results indicate that lenders remain open to business but at a higher cost and with more prudent LVR, ICR, and presales. The main findings of the report include;

• All-in interest rates are likely to continue increasing via lenders’ margins. However, these increases are expected to occur at a slower rate than in 2022 as substantial pricing premiums are already built in by most lenders.
• Appetite to lend shows a small improvement compared to last year. This improvement is mainly for investment rather than development loans.
• Appetite for development lending is towards terrace/townhouse dwelling types. Compared to last year’s survey, there is a significant uplift in required presales as proof of concept and to help reduce concerns around settlement risk.
• LVR continues to be the bridesmaid to ICR requirements. Non-banks make up the higher end of LVR capacity, driven by comfort with lower ICRs. Bank lenders are seeking a minimum of 1.50x -1.75x ICR cover. For some existing clients they are falling below this level but require a pathway back to 1.50x. Non-bank lenders are less concerned with LVR and ICR, as long as an achievable exit is available, whether via refinance, amortisation, development or divestment.
• Given the current constrained nature of servicing for many stabilised assets, hedging is being highlighted by all banks and an element of hedging as a condition to funding is highly likely.