Mortgage

Slowdown in mortgage lending on the cards this year – economist

Houses around Lyttelton area in Christchurch
Written by Publishing Team

Mortgage lending flows were high at the end of 2021, however, there are signs of easing low-deposit lending to resident owners.

Houses around the Lyttelton area of ​​Christchurch

CoreLogic says that floating debt continues to decline as a percentage of total mortgage lending in the country.
Photo: RNZ / Nate McKinnon

CoreLogic’s chief real estate economist, Kelvin Davidson, said the trend will be something 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 many borrowers who have fixed loans due to refinancing.”

Davidson said there are three main points to note from the November data released by the Reserve Bank at the end of 2021.

First, the total lending number was solid at $9.1 billion — the fourth highest monthly total on record, Davidson said.

“Unsurprisingly, the strength of the overall lending figure has been driven by owners, as investors are now on a steady downtrend.

“Their activity in November was down about $1 billion from the previous year at $3.1 billion.”

Davidson said the figure reflects the 40 percent filing requirement, tightening tax rules and rising mortgage rates.

“Second, and more important, was the breakdown of the lending numbers by loan-to-value ratio (LVR).

“It remains virtually impossible for an investor to get a low deposit loan and after an increase in October, the share of owner and resident lending at high LVR in November also declined, from 12.5 percent to 10.5 percent.”

Davidson said there were signs that homebuyers were behind the general easing in higher LVR lending to landlord and occupants in November.

He said high LVR lending as a share of total early-stage homebuyers in November fell somewhat sharply, from 42.5 percent in October to 36.8 percent — the lowest number since April.

Finally, Davidson said the latest lending numbers confirmed the ongoing shift in New Zealand’s mortgage debt structure.

“[It’s moving] away from fixed loans with up to 12 months remaining to operate, more than 1-2 years and more than two years, particularly the two-to-three-year segment.”

He said that the floating debt continued to decline as a percentage of the total.

What are the key things to watch for over the next few months?

Davidson said that although the share of short-term fixed-rate loans has declined, it is still fairly high, with 54 percent scheduled to refinance over the next 12 months.

“When you add 11 per cent of the variable debt, you still have about two-thirds of the loans in New Zealand that will soon have higher mortgage rates.

“This will be a headwind for the housing market itself, as well as the broader economy as households are forced to shift their spending toward paying off mortgage debt.”

Davidson said he will closely monitor the lending data by the LVR — particularly to the extent to which banks have proven to be hawkish regarding the share of owner and resident lending made at low deposits.

“In 2017, when the speed limit was last set at 10 percent, banks practically acted more cautiously at just 5 percent of lending at low deposit/high LVR.

“If history repeats this time around, there is still a lot of tightening yet to come for low-deposit loans, which will likely hold back first home buyers the most — just as they are said to be also being hit hard by tougher CCCFA requirements. About the Income and Expense Test.”

Overall, he said, the latest mortgage loan numbers have been tracking as expected, but the slowdown in lending flows remains firmly in the cards in 2022.

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