NZ mortgage debt lifts as LVR cap starts to bite

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By Leith van Onselen

The Reserve Bank of New Zealand (RBNZ) yesterday released its household credit data for the month of September, which revealed an acceleration in the growth of New Zealand mortgage debt, which increased to an annual pace of 5.8%: the fastest pace of growth in five years (see next chart).

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The growth in household debt has been outpacing nominal GDP growth since June 2012, meaning that the ratio of mortgage debt to household disposable income has lifted 3% to 86% as at June 2013 (see next chart).

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The acceleration in mortgage credit growth is probably expected given the recent surge in New Zealand house prices, where values surged by 9.8% in the year to September, driven by 17.5% growth in Auckland (see below charts).

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Credit growth does appear to have slowed recently, however. In October, the RBNZ began to cap the proportion of 80%-plus loan-to-value ration (LVR) mortgages that can be issued by New Zealand’s banks, which appears to have slowed the growth of housing finance commitments. As shown by the below charts, housing loan approvals appear to have turned down, although it is obviously early days:

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With the new limits on high LVR lending now in force, we may very well have witnessed the peaking of New Zealand mortgage credit growth.

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Leith van Onselen


  1. Mortgage or any other type of credit in New Zealand will soon be shown to be controlled by one thing – interest rates, not attempts at credit control solely designed to keep the property ship afloat! See that last graph?; Look at what happens in the 2006/7 period when the OCR was ramped up to 8.25% and there was nothing else done. That’s what you call credit control…..(NB: And then look at what happened when the OCR was dropped to 2.5% !)

    • Yes – often the simple things in life are best.

      But at least with NZ following the Churchill comment about Americans “Eventually doing the right thing after trying everything else first” Australia will finally be able to answer the question.

      Does MP allow a Central Bank to run a debt pumping low interest rate monetary policy safely?

      Stay calm and observe.

    • That seems to be the case J. Very few people look at the balance sheet any more, the only question is can the cash-flow sustain the debt.

      The is of course borne of the near certainty that asset prices will increase come what may thanks to the central bank puts.