High LVR lending crashes in New Zealand but…

From Banking Day:

The Reserve Bank of New Zealand reported that loans with a loan-to-valuation ratios of over 80 per cent fell to NZ$571 million in October from NZ$1.19 billion in September..high LVR lending fell to 12.8 per cent of new mortgage flow in the first month of the new policy. After exemptions, this lending was 11.7 per cent of new flow.  This is down from…30 per cent earlier in the year…Low LVR lending rose to NZ$3.89 billion in October from NZ$3.16 billion in September…

We’ve already reported that NZ credit growth has begun to fall year on year:

ScreenHunter_380-Nov.-22-11.09

It will be interesting to see if this is enough to stall house price growth or whether the shift in composition of mortgages will replicate some of the peculiar dynamics at large in the Australian market, with low credit growth but continued price rises as high cash buying plays a role.

The RBNZ may have to play whack-a-mole for little while as it adjusts the settings.

David Llewellyn-Smith
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Comments

  1. High leverage lending is the code word for FTB.investors can now buy at more reasonable price.cannot wait to have this genius move implemented here.

    • “investors can now buy at more reasonable price”, and that is code for – “lower prices”. This is just the start. The RBNZ had a false start 4 years back, and chickened out, just when it should have held firm. I doubt it will make the same mistake again. (NB: It’s not just code for FHBers that have to have 20% now, it’s all buyers. Those investors you mention? So do they. And I’ll bet that applies across their portfolio. What was once a 15% investment strategy, is now a 20% one, and anyone who wants to add to their holdings will have to re-collateralize all their properties!)

    • investors can now buy at more reasonable price.

      But if prices don’t rise or fall than what are their returns?

      • +1 exactly.

        The answer: the low rental yield.

        Yet again, the fundamentals win against momo plays, credit expansion has stopped, so eventually everyone has to sell.

        After finding they can also lose money on property, sentiment changes and investors move to other higher yielding markets.

        This has all happened before and it will happen again.

        • Indeed. Rental yield is capped by incomes not speculative credit. So guess what so called “prop investors” rents are not going to rise to cover the gap. Prices will have to fall.

          • Most investors look at very long term holding, as rents do not increase much more than cpi, it s best to not too pay too much, and if you plan to grow your portfolio, a unconstrained price rise is not in your interest at all ( your next acquisition would have decreasing yield).

            cpi increase it s all that s needed.

          • @dam but until the lowest rates in history, most property investments were losing money. How many CPI increases would it take to just get to neutral?

            Yeah there is the leverage factor but that’s it. Let’s not kid ourselves yeah.

          • dirt cheap leverage and time, hard to go wrong with both, rents increase, mortgage not (beside rate effect of course), the more cpi the better.

  2. The latest NZ building stats are out and there is a drop of 2.8%. The RBNZ needs to make exemptions for new builds otherwise they risk offsetting the gains they are making in credit/price growth reduction with a corresponding reduction in new home supply,which is what we don’t want.

  3. I have been reading this site for ages and have great faith on the arguments put forth to contain house price growth by the authors, but have no hope Australian politicians will do anything about it.

    We are lucky to have NZ, a close neighbour putting some of MB’s long discussed policies in place, if it succeeds there MB’s voice to push for something similar in AUS will have much more weight, assuming that is what most people want.

    Unfortunately only FHB seem to want lower prices, and that is a small part of the population, so I am not sure we will ever be heard….