Total lending in August was at its lowest level for the month since 2019
Gross mortgage lending flows remained soft in August, with just 0.7% of investors and 4.1% of owner-occupiers securing low-deposit finance, CoreLogic data showed.
Read more: First-home buyers quietly returning to the market – CoreLogic
“A cautious attitude towards low-equity loans isn’t hard to understand in an environment where property values are still falling,” said Kelvin Davidson, CoreLogic’s chief economist. “More generally, after a period where mortgage rates showed signs of a peak, the renewed increases in the past week or so will remain testing for new borrowers, and those rolling off older fixed loans.”
Considering that property sales data for August has remained very weak, Davidson said it was not surprising that gross mortgage lending activity (across new loans, top-ups, and bank switches) was also sluggish last month.
The total lending flow of $5.4 billion was significantly lower compared to the $8.2bn in the same month last year, and was, in fact, the lowest figure for August since 2019. Moreover, when measured by the number of loans (15,109), activity was the weakest since at least 2013.
Davidson said the breakdown by borrower type showed that both investors and owner-occupiers are struggling, with lending continuing to fall in recent months.
Read next: CoreLogic: New Zealand property market ends 2021 on a high
“Our own CoreLogic Buyer Classification data has shown a similar pattern in recent months, albeit with some signs of a pick-up for first-home buyers lately,” he said. “There were hints in the data that a pick-up for interest-only (I-O) lending has helped some investors purchase property in the past few months, but generally speaking, I-O lending remains under control. Certainly, given the removal of interest deductibility for purchasers of existing property, there’s now more of an incentive for investors to repay some principal anyway.”
When it comes to the breakdown of the figures by LVR, it’s clear that low-deposit mortgages remain very difficult to secure. Data showed that just 0.7% of investor loans were approved with a deposit of less than a 40% in August versus the speed limit of 5%, and only 4.1% of owner-occupier loans had under a 20% deposit, against the speed limit of 10%, after exemptions (e.g. for new-builds).
“Given continued falls in property values, it’s not hard to understand a cautious attitude from the banks when it comes to approving loans to borrowers who already have lower equity levels,” Davidson said. “With housing affordability still stretched and mortgage rates higher, it’s likely that fewer borrowers really want a high-LVR loan, either.”
Looking ahead, Davidson said the pressure for many borrowers as they roll off previous low-interest rates onto a much higher repayment schedule will be a key issue for the mortgage market in the coming months.
“To be fair, the scale of this ‘refinancing wave’ isn’t as big as it used to be – currently 44% of existing mortgages (by value) are fixed and due to roll over in the next year, which is well down from the peak of 66% in June last year, and back down to levels last seen in early 2018,” he said. “However, anybody rolling onto new rates will still be seeing a large change in their repayments, given the sharp increases since the middle of last year. And although it’s fairly safe to say we’re closer to the peak for mortgage rates than the trough, it’s still far from certain that mortgage rates have actually topped out yet – even despite strong competition amongst the banks.”
That said, Davidson said most borrowers appear to be coping pretty well – helped by low unemployment.
“The Reserve Bank data suggests that lenders haven’t felt the need to increase their provisions for bad debts too much, and just 0.2% of loans are non-performing (where payments are 90 days late or have been classed as ‘impaired’),” he said.
Overall, Davidson said the mortgage lending activity remains “pretty quiet.” There hasn’t been an indication the RBNZ is considering a near-term loosening of the LVR rules either. The central bank is also still currently working on more lending restrictions in the form of potential caps on debt-to-income ratios – albeit not until mid-2023 at the earliest, if required.
“Interestingly, high-DTI lending is already tightening up anyway, due to some combination of banks’ own policies, reduced borrower demand, and also the simple effect of higher mortgage rates – which naturally reduce the amount of debt a borrower can service for any given income,” he said.
