Ardern looks to pump faltering New Zealand mortgage market

Mortgage demand in New Zealand fell sharply in the final quarter of 2021, according to credit reporting company Equifax:

“Credit inquiries are a lead indicator of housing turnover and price movement, and despite the increase in house prices across New Zealand in the December quarter, the recent reduction in mortgage demand may indicate cooling prices in the coming quarters,” [said Equifax New Zealand’s managing director, Angus Luffman].

Demand for loans in the current year looked likely to be subdued thanks to the continued pandemic, but Luffman said new lending laws, supposed to protect vulnerable borrowers from unscrupulous lower-tier lenders, were expected to have an impact on lending levels…

Reserve Bank restrictions on the volume of low-deposit home lending would also have an impact on lending levels, Luffman said.

In response, the Ardern Government is reportedly reviewing the new banking regulations amid concerns that lenders are applying the rules so rigorously that many people are being shut out of the housing market:

The government has asked the Council of Financial Regulators to bring forward an investigation into whether lenders are implementing the new rules as intended, Commerce Minister David Clark said. That follows a report from credit bureau Centrix that just 30% of home-loan applications in December resulted in loans, down from 36% before the Credit Contracts and Consumer Finance Act took effect on Dec. 1.

“It may be that in the initial weeks of implementing the new CCCFA requirements there has been a decision to unduly err on the side of caution,” Clark said in a statement. “An investigation by the Council of Financial Regulators will determine the extent to which lender behavior, in respect of the CCCFA, is a significant factor in changes to banks’ lending practices.”

The government introduced the new law to protect vulnerable borrowers following evidence of questionable bank lending practices in Australia, and as soaring New Zealand property prices meant many buyers were taking out ever larger loans. But the suggestion the new law could be stopping many from buying a house will be awkward for Prime Minister Jacinda Ardern, who has frequently said she wants more New Zealanders to be able to own their own home…

Under the CCCFA, lenders have additional obligations when determining affordability and suitability of a loan, she said. That has resulted in them having to review clients’ income and expenditure in much greater detail, and they are now determining expenditure previously considered discretionary as non-discretionary in order to meet the new requirements.

According to CoreLogic, New Zealand property finished 2021 with an average price of $1,006,632 and record-breaking annual market growth of 27.4%:

This surpassed the previous record of 24.4% annual growth in 2003.

Despite talking tough on housing affordability, the Ardern Government seems intent to keep the easy credit flowing.

Unconventional Economist

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