Banks tighten lending screws on New Zealand housing

Economist Tony Alexander has released a new survey of mortgage advisers, which finds that both first home buyers and investors continue to pull back from New Zealand’s housing market:

A net 12% of our respondents this month have reported that they are seeing fewer first home buyers looking for finance. This is essentially the same as the 14% of May and 8% of April…

First home buyer mortgage demand

First home buyers are likely to be holding back from the market as they see a continuing string of reports about falling prices and difficulties being faced by those getting a house built.

Those stepping forward looking for finance are finding that they often cannot get it or obtain the volume of funding they are after…

In a nutshell, since the LVRs returned in February last year and then the tax rules were changed and the minimum deposit for investors jumped to 40% in May, investor buyers have been standing back from the market. There has been no upward or downward trend in this investor withdrawal for over a year now and it seems unlikely in the current deteriorating economic, interest rate, and asset price environment that we will see much improvement in their willingness to re-engage with property purchases this year…

Investor mortgage demand

Mortgage advisers are also reporting that banks have raised their test interest rates and requirements, which is crimping credit availability:

Those stepping forward looking for finance are finding that they often cannot get it or obtain the volume of funding they are after. Banks have increased their test interest rates to around 7.6% as mortgage rates have gone up and the Reserve Bank has signalled extra monetary policy tightening is to come.

Banks have also increased their UMI – uncommitted monthly income – requirements. One major lender requires that borrowers have at least $2,000 a month not committed to any regular outgoing before they will agree to financing. This is a larger requirement than for a long time…

In April and May net positive proportions of mortgage advisers said that banks were becoming more willing to advance funds. But this month we have reverted to a net 18% feeling that they have become less willing to lend.

Triggers for this view appear to include higher test interest rates, additional scaling back of rental income, and higher requirements for uncommitted monthly income…

Willingness to lend

Given cheap and easy mortgage credit fueled New Zealand’s pandemic house price boom, tighter access to credit and soaring rates will have the opposite effect and push home values lower.

The impact will be greatest on Kiwi borrowers that took out jumbo-sized mortgages at record low rates last year. Many of these borrowers are facing the prospect of soaring mortgage repayments once their fixed loan terms expire, alongside seeing their homes plunge in value.

Unconventional Economist


  1. The RBNZ has lost control. The Banks are now doing their own driving of the retail debt market, and ignoring the OCR – as, quite frankly, they should.

    BNZ followed ANZ with chunky home loan rate increases. They were followed in turn by HSBC who raised all their fixed rates. And now Westpac has chimed in with their own increases, raising all fixed terms by 50 bps.

  2. It’s hilarious how macroprudential is used pro-cyclically.

    Really, during a boom, a combo of mortgage duration reductions and LVRs should be used to limit the upward movement.

    They can do it by dictate. You can originate a new loan but it has to be for 25 years with 15% real deposit. Bam. There goes the air.

  3. Hugh PavletichMEMBER

    Global housing bubbles: New Zealand the worst of 30 nations … Bloomberg …

    The World’s Bubbliest Housing Markets Are Flashing Warning Signs … Enda Curran … Bloomberg

    A world economy already contending with raging inflation, stock-market turmoil and a grueling war is facing yet another threat: the unraveling of a massive housing boom.

    As central banks around the globe rapidly increase interest rates, soaring borrowing costs mean people who were already stretching to buy property are finally reaching their limits. The effects are being seen in countries such as Canada, the US and New Zealand, where once-hot residential real estate markets have suddenly turned cold.

    It’s a sharp reversal from years of surging prices fueled by rock-bottom mortgage rates and government stimulus, along with a pandemic that popularized remote work and sent homebuyers on the hunt for bigger spaces. An analysis by Bloomberg Economics shows that 19 OECD countries have combined price-to-rent and home price-to-income ratios that are higher today than they were ahead of the 2008 financial crisis — an indication that prices have moved out of line with fundamentals.

    New Zealand at Top of Risk Ranking

    Five gauges of property risk for OECD member and accession countries …

    ( 30 nation graph )

    … Housing markets in New Zealand, the Czech Republic, Australia and Canada rank among the world’s bubbliest and are particularly vulnerable to falling prices, according to Bloomberg Economics. Portugal is especially at risk in the euro area, while Austria, Germany and the Netherlands also are looking frothy. … read more via hyperlink above …

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