'Mortgage repricing issue remains a key one to watch'
CoreLogic NZ’s chief property economist, Kelvin Davidson (pictured), delved into the current trends about mortgage debt as the housing loan market has been subdued for the past 12-18 months with the downward activity in sales volumes and property prices.
“The mortgage repricing issue remains a key one to watch,” said Davidson.
What were the insights about mortgage debt?
The gross new lending flows from August until October, which covered housing purchases, bank switches, and loan top-up, were 4% higher than it had been in the previous year. However, the $16.8 billion in total was still below the figures seen in the same period in 2020 ($21.9 billion) and 2021 ($22.8 billion).
Only 0.3% of investors got a loan in October with less than a 35% deposit, while only 7% of all owner-occupiers borrowed with a deposit less than 20%. Notably, the speed limit for the low deposit owner-occupier lending was 15%.
Meanwhile, about one-third of first-home buyers who got a loan in October with a low deposit. FHBs have consistently accounted for 70-80% of all owner-occupier lending at a low deposit. FHBs also appeared to take out relatively large loans, with the average being $562,000 in October while the investor figure was only around $493,000.
Risky lending did not appear to be a present problem, as only 17% of lending that occurred in October was interest-only, while loans at debt to income (CTI) ratios of at least 7 were reportedly under control.
The latest industry-wide figure for a high equity one-year fix settled at 7.3% while the two-year rate was roughly 7%, with lows standing at 2.2% and 2.6% respectively. The average mortgage rate was still below prevailing market rates as it was at 5.3%.
Currently, the total mortgage debt stood at $354 billion while the estimated value of property stock is at $1.585 billion, which showed an aggregate LVR of 22%.
Despite the implication of having a lot of equity on paper, the mortgage repricing process continues and will still be an issue as 2024 approaches. While 54% of current loans are fixed, since they will be repriced in the next 12 months, many will see a higher mortgage rate.
Non-performing mortgages continued to have a value of debt that was less than 0.5% and CoreLogic data found there were only 41 mortgagee sales in Q3 2023. Many mortgage-holders were also reportedly ahead of their repayments.
“The labour market has been robust in the past few years, even though the economy has been flirting with recession. That job security has kept stress in the mortgage sector at low levels, even though households have had to significantly adjust their finances,” said Davidson.
He further noted that the trend of households adjusting to higher mortgage rates may not last, especially if job losses were to be anticipated in 2024.
“Due to ‘higher for longer’ mortgage rates, we remain cautious about the potential speed of this emerging ‘upturn’ in house prices,” said Davidson.
“High interest rates – combined with low rental yields – are a key hurdle for investors looking to expand or start their portfolios at present.”
