Mortgage flows were high at the end of 2021, however, there are signs of easing for low deposit homeowner lending.
CoreLogic’s chief real estate economist Kelvin Davidson said the trend would be one to watch in the coming months as banks adjust to the new speed limits.
“In addition, an important factor this year will also be the impact of higher mortgage rates on the many borrowers who have fixed loans due to refinancing.”
Davidson said there were three key points to note in the November data, released by the Reserve Bank in late 2021.
First, the aggregate loan figure stood at $ 9.1 billion – the fourth-highest monthly total on record, Davidson said.
“Not surprisingly, the strength of the overall loan figure has been driven by homeowners, with investors now on a steadily declining trend.
“Their activity in November fell by about $ 1 billion from the previous year to $ 3.1 billion.”
Davidson said the figure reflected the 40 percent deposit requirement, tighter tax rules and rising mortgage rates.
“Second, and more interesting, was the breakdown of the loan-to-loan-to-value (LVR) numbers.
“It is still practically impossible for an investor to get a low deposit loan and after an increase in October, the share of homeowner loans at high LVR also fell in November, from 12.5% to 10. 5%. “
Davidson said there were signs early home buyers were behind the general easing of high LVR loans to homeowners in November.
High LVR loans as a percentage of total first-time home buyers in November fell quite sharply, from 42.5% in October to 36.8% – the lowest figure since April, he said.
Finally, Davidson said the latest loan figures confirmed the continued change in New Zealand’s mortgage debt structure.
“[It’s moving] away from fixed loans with up to 12 months to run and more towards durations of one to two years and more than two years, in particular the tranche of two to three years. “
Floating debt continued to fall as a share of the total, he said.
What are the key elements to watch out for in the coming months?
Although the share of shorter-term fixed-rate loans is declining, it remains quite high, with 54% due to be refinanced in the next 12 months, Davidson said.
“When you add 11% of floating debt, you still have about two-thirds of loans in New Zealand that will be exposed to higher mortgage rates fairly quickly.
“This will be a headwind for the housing market itself, as well as the economy as a whole, as households are forced to divert their spending towards paying down mortgage debt.”
Davidson said he would also keep a close eye on LVR lending data – particularly how picky banks are getting on the low deposit portion of homeowner loans.
“In 2017, when the speed limit was last set at 10%, in practice banks operated much more cautiously at just 5% of low deposit / high LVR loans.
“If history repeats itself this time around, there is still a lot of tightening ahead for low deposit rate loans, which is likely to annoy first-time homebuyers the most – just when they are. would also be hit very hard by the CCCFA requirements for more stringent income and expense tests. “
Overall, he said, the latest mortgage figures have gone according to plan, but a slowdown in loan flows is firmly to be expected in 2022.