NZ mortage growth rebounds as investors stir

By Leith van Onselen

The RBNZ’s latest mortgage data shows that household and mortgage credit growth has begun to rise again after cooling recently in response to loan-to-value ratio restrictions targeting investors.

After bottoming in February at 5.7%, annual New Zealand household credit growth rose to 5.8% in July:

Most of New Zealand’s household debt is driven by mortgages, which has also rebounded from 5.6% annual growth in February to 5.7% annual growth in July:

The RBNZ’s LVR restrictions officially came into effect on 1 October 2016, although banks began informally applying the rules since they were first announced in mid-July 2016.

Separate data released by the Reserve Bank of New Zealand (RBNZ) also reveals that property investors have begun to rebound after leading the cooling in mortgage credit growth.

According to the RBNZ, the value of investor mortgages taken out in July 2018 rose by 25% versus July 2017, whereas the number of mortgages was up 17%. In the hotspot of Auckland, the value of investor mortgages rose 16% year-on-year, whereas outside of Auckland investor mortgages were up 79%.

Auckland investors’ share of mortgages by value were 39% in July – way below the 48% peak recorded in June 2016, but above the recent low of 35%:

The share of investor loans in the nation as a whole was 24% and has risen recently, although it is down significantly from the peak of 35% recorded in June 2016. Whereas the rest of New Zealand was 10%, also having risen recently but still down from 20% in March 2016.

Again, the slowing in investor mortgage demand follows loan-to-value ratio (LVR) restrictions targeting investors from the RBNZ, which officially came into effect on 1 October 2016, although banks have been informally applying the rules since they were first announced in mid-July.

As shown below, investors nationally comprised 24% of total lending in July by value (16% by number), whereas first home buyers (FHBs) accounted for a rising 16% of lending by value (10% by number):

Moreover, the share of new loans that are interest-only was 31% in July, down from 41% in May 2016, whereas the share of new investor loans that are interest-only was 50% in July, down from the 55% recorded in June 2016:

Thus, while the investor LVR restrictions from the RBNZ have clearly had an impact in cooling speculative demand, it does seem to be fading.

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