March was another bumper month for mortgage lending activity, but the tighter loan to value ratio rules from 1st March (and effectively prior to that because of banks’ own actions) have already significantly curtailed the low-deposit investor flows, as would be expected. On top of that, the Government has of course now taken significant action to dampen higher-debt investor activity in the property market too. Further measures (e.g. caps on interest-only investor lending) can’t be ruled out at some stage over the next few months either, but the chances do seem to have dropped.
Given we already knew that property sales volumes had been very high again in March, it was no surprise to see that mortgage lenders had another bumper month too. Indeed, the Reserve Bank (RBNZ) figures showed lending flows of $10.5bn last month, another very high level and up by $4.3bn from a year ago (although lending in March last year was affected by the first week of the alert level four lockdown). Once again, both owner-occupiers and investors were keen to borrow more in March, as the first chart shows.
Meanwhile, the official loan to value ratio (LVR) rules of course kicked in again from 1st March, and as the second chart shows, high LVR lending to investors has quickly returned to less than the mandated speed limit (see the second chart). That’s to be fully expected, given that the banks themselves had already moved well ahead of the official date for tighter LVRs, and have actually gone further, already requiring a 40% deposit. On that note, the RBNZ will mandate that figure from Saturday (1st May).
It’s also interesting to see that high LVR lending to owner-occupiers never went above the speed limit, even when it didn’t officially apply. Indeed, the banks had been keeping their own limits in place, and the share of lending to owner-occupiers with less than a 20% deposit has actually declined lately, to currently sit at around 10% (only half the speed limit). This shows a cautious attitude from the banks, but also hints at a perception that some borrowers, such as first home buyers, may not necessarily understand that the speed limits still allow some low-deposit lending, not nothing at all.
Looking at interest-only lending activity, it’s still relatively high for investors, at about 42% of new loans in March and 39% of the outstanding stock (see the third chart) – much greater than the figures for owner-occupiers. Finally, the latest figures show that owner-occupiers with a fixed rate mortgage of one year or less account for 46% of loans, and investors in the same bracket another 19% (see the fourth chart). That total of 65% is up very sharply from 47% a year ago, but understandable when you consider the attractive deals for a one-year fix lately.
Taking a step back, the data shows that the tighter LVR rules have already had a significant effect on investor lending activity, even before the impacts of the Government’s housing/tax policy changes start to filter through over the coming months – note that we don’t anticipate the interest deductibility & Brightline changes to cause a sell-off by current landlords, but further purchases are likely to be curtailed (especially for existing properties by leveraged investors).
The next guidance on the possibility of further curbs on investor demand (e.g. interest-only lending caps and/or debt to income restrictions) will now be ‘late May’ when the RBNZ gives their analysis to the Government. The Government would then need to approve the tools and there’d also be a consultation phase before the RBNZ actually made any changes. Regardless of how long all of that might take, however, the tighter investor/tax rules already announced suggest to us that the RBNZ may well be happier to take a ‘wait and see’ approach before taking even more action.