There was no let-up in mortgage lending flows last month, with another $7.3bn of activity taking place – almost $2bn more than the same month last year. That’s occurring even with continued stringency around credit standards, such as stable interest-only lending and controlled overall high LVR lending flows. There’s been some speculation lately that the LVR speed limits could soon be reinstated for investors, although it’s at least worth noting that this could create technical problems around the mortgage deferral scheme (which runs until March next year).
The momentum that built up in mortgage lending activity in July and August simply rolled on into September. The Reserve Bank (RBNZ) figures just released at 3pm today show that there was $7.3bn of lending last month, up by $1.8bn from the same month last year. Lending flows for the year to date have been $49.6bn, now slightly ahead of the same time last year ($48.8bn). As the first chart shows, both owner occupiers and investors have contributed to the sharp upswing in the past few months, after the April/May lull.
Looking at the different cuts of the data, interest only lending held steady at about 26% of September’s total, broadly the level it’s been at for four months in a row now – and well below the figures of about 40% in 2015-16. Meanwhile, even with the LVR speed limits currently on hold, the banks themselves are keeping a pretty tight rein on loans at >80% LVR – these were only 10.8%% of the total in September (see the second chart).
In addition, borrowers are still having to meet stringent testing about their income too. For example, anecdotal evidence suggests that some would-be investors could easily raise the required deposit from equity in their own homes, but are having to work much harder to satisfy income tests (especially since not all rental income is considered for debt servicing purposes).
That said, the fact that lending volumes are still rising suggests that eventually most people who want a mortgage are getting it in the end. And arguably the biggest beneficiaries of the temporary LVR removal have been investors who might have struggled to meet previous 30% deposit requirements but can now get there with 20% – certainly the rebound in growth for investor lending is now pretty clear to see (see the third chart).
In turn, that has prompted speculation about if/when the RBNZ might reinstate the LVR rules, even if only for investors. It’s worth bearing in mind here that the speed limits were removed partly to allow banks to grant payment deferrals without risking technical breaches of loan conditions – and payment deferrals are still going to be in place until March next year. In addition, recent comments from the RBNZ itself don’t suggest that they’re in any hurry to reverse any aspect of their wider support package – instead focusing on protecting jobs now. Even so, the longer this upswing in mortgage (and investor) lending and the general property market continues, clearly the higher are the chances of some kind of shift on LVRs.
Finally, just as a reconfirmation of the positive role that the previous LVR rules have played – by ensuring that borrowers had sufficient equity and could withstand a period of fragility – mortgagee sales remained very low in Q3 (see the fourth chart).