Mortgage lending in March was higher than the same month a year ago, but the pace of growth has slowed – not surprising, given the increase in economic uncertainty through March and then of course the alert level four lockdown from the 25th. In the months ahead, mortgage lending is likely to weaken further, and the possible removal of the LVR speed limits probably wouldn’t alter that outlook very much.

Annual change in lending, $m (Source: RBNZ)
Annual change in lending, $m (Source: RBNZ)

Today’s Reserve Bank (RBNZ) figures showed that there was $6.2bn of mortgage lending in March, a rise of about $410m from the same month a year ago. That was a solid increase, but still the most subdued figure since August last year – which of course is consistent with the fact that we lost four working days at the end of March to alert level four lockdown. But on top of that, it may also hint at the first signs of a wider COVID-19 driven slowdown in the mortgage market, reflecting caution both by lenders and borrowers.

Proportion of lending at high LVRs (Source: RBNZ)
Proportion of lending at high LVRs (Source: RBNZ)

In terms of the detail, lending to both owner-occupiers and investors eased off in March (see the first chart), while high loan to value ratio (LVR) activity stayed well-contained (see the second chart). In particular, high LVR lending to first home buyers has eased recently, as the third chart shows.

Owner-occupier lending at high LVR (Source: RBNZ)
Owner-occupier lending at high LVR (Source: RBNZ)

Of course, these latest RBNZ figures only covered a small part of alert level four lockdown and clearly a lot has changed since the end of March. For a start, with basically no property transactions for the first 27 days of April, the next set of stats (to be published 26th May) will very likely show a sharp fall in mortgage lending activity. In the next few months after that, we may see interest-only activity rise (at least in proportional terms), given the increased number of borrowers looking at this option to reduce their mortgage payments. Indeed, as the fourth chart shows, there were already clear signs of this happening in March – and we heard directly from ANZ (on our April 24th podcast) that about 3% of their borrowers have gone interest-only.

Proportion of lending interest-only (Source: RBNZ)
Proportion of lending interest-only (Source: RBNZ)

Another change has been the RBNZ’s proposal to remove the LVR speed limits until at least 1st May 2021 – submissions on the consultation close today. If enacted, the removal would obviously help some new borrowers into the market with smaller deposits, but it’s unlikely to be a broad game-changer for the property market – after all, lenders weren’t testing the speed limits anyway (see the second chart again), they’ll also remain cautious about deposits (even if the RBNZ isn’t mandating them) and of course income/expense testing too, while borrowers themselves will also be proceeding with care.

Overall, like everything else, the mortgage market is in for some testing months ahead – and although activity should now improve under alerts levels three and two, 2020 will obviously be quieter than it otherwise would have been. Mortgage payment deferrals will help borrowers ride out (hopefully) the worst of the crisis, but when they come to an end from around September onwards, it’s going to be crucial to monitor the effect on property listings activity and any downwards price pressures.