What's happening with mortgage lending in New Zealand?

The mortgage lending industry in New Zealand boasted strong figures in late 2021, with the Reserve Bank of New Zealand’s (RBNZ) November stats showing that total monthly new mortgage commitments exceeded $9 billion during that month. Now, CoreLogic New Zealand (CoreLogic NZ) has delved into these figures to predict what could change this year.

According to RBNZ, total monthly new mortgage commitments reached $9.1 billion in November 2021, up $1.4 billion (18%) from the previous month. Investors’ mortgage commitments were $1.5 billion in November (up from $1.3 billion from the previous month), while those of first-home buyers (FHBs) were $1.7 billion (up $286.5 million from the previous month).

Considering these November figures, CoreLogic NZ claimed that the strength of the overall lending figure was driven by owner-occupiers (FHBs and “other”), with investors on a steady downward trend because their activity during that month dropped by around $1 billion from a year earlier.

“Clearly, that will be reflecting the 40% deposit requirement, tougher tax rules, and probably also the changed economics, with property yields now quite low and costs rising (especially mortgage rates),” said CoreLogic NZ chief economist Kelvin Davidson.

Read more: CoreLogic: New Zealand property market ends 2021 on a high

CoreLogic NZ also noted that the breakdown of the November lending figures by loan-to-value ratio (LVR) suggested that it is still impossible for investors to get a low-deposit loan unless they buy a new build.

Moreover, it noticed that the share of owner-occupier lending at a high LVR also dropped back in November following an increase in October, from 12.5% to 10.5% – still above the speed limit, even though it kicked in at the new 10% level from November 01, 2021.

“This is possible because the banks have a grace period to adjust to the new rules to allow for things like pre-approvals to work their way through the system,” Davidson said.

The lending figures also confirmed the continued shift in New Zealand’s mortgage debt structure – away from fixed loans with up to 12 months left to run and more towards the one and two-year durations and more than two years (especially the two to three-year bracket).

Moving forward, CoreLogic NZ advises Kiwis to watch out for the following:

• Although the share of loans on shorter-term fixed rates is dropping, Davidson claimed it is still fairly high, with 54% to be refinanced within the next 12 months. When we add in 11% floating debt, two-thirds of loans will still be exposed to higher mortgage rates fairly shortly. “That will be a headwind for the housing market itself, as well as the wider economy as households are forced to divert their spending towards mortgage debt repayments,” Davidson said.
• Keep a close eye on the lending data by LVR, especially how tough the banks prove to be on the share of owner-occupier lending done at a low deposit.