Mortgage lending in May wasn’t as strong as we had been anticipating, but the lost ground was well and truly recovered in June, with $5.4bn of new loans on a par with the same month last year. This is yet another indicator which signals a return to some kind of normality in the economy and property market. July and August’s figures may also be relatively healthy, but the end of the wage subsidy on 1st September could signal the start of a weaker trend.

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

The recovery in mortgage lending activity that began in May was continued into June, with the Reserve Bank (RBNZ) reporting $5.4bn of new loans being made last month. That was up from April’s low point of just $2.7bn, and was pretty much on a par with the same month last year (after declines of 50% in April and 33% in May). Lending to both owner-occupiers and investors showed better results in June (see the first chart).

Proportion of lending at >80% LVR (Source: RBNZ)
Proportion of lending at >80% LVR (Source: RBNZ)

Generally speaking, media commentary and anecdotal evidence we’ve heard is that the banks haven’t massively altered their attitudes to high loan-to-value ratio lending (even though the speed limits are no longer mandated by the RBNZ), although there still has been a gentle creep upwards in the share of lending being done at >80% LVRs (see the second chart). June’s figure came in at 12.1%.

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

The latest figures also showed that interest-only loans were less common in June than either April or May – perhaps suggesting that most households who needed some relief on their current expenses have already got this sorted. In June, 17% of total lending (of $5.4bn) was advanced to owner-occupiers on interest-only terms, with another 8% going to investors interest-only (see the third chart). The total of about 25% was back down at pre-lockdown levels.

Number of mortgagee sales (Source: CoreLogic)
Number of mortgagee sales (Source: CoreLogic)

Overall, our general take on mortgage lending at present is that the banks have money available, but are rightly still paying very close attention to a borrower’s job security and their ability to keep meeting their repayments into the future. That said, there are at least hints that the internal serviceability interest rates being used to stress-test borrowers are being slowly reduced, while there’s also still very little pressure coming through on mortgagee sales (see the fourth chart).

As we’ve been re-iterating for some time now, September still looms as a crunch period for the economy, mortgage lending activity, and the property market, given the end of the wage subsidy on the 1st of that month, and the General Election on the 19th. Indeed, borrower demand has clearly improved since April, but (as also noted in the RBNZ’s latest Credit Conditions Survey) it looks likely that the negative effects of the recession may begin to outweigh the positive effects of ultra-low mortgage rates as we get closer to the end of the year.

It’s important to remember that about $40bn (roughly 15% of the total stock) of loans is reported to have had some kind of relief in the past few months, such as a payment deferral. These will need to be refinanced/reviewed again pretty shortly (if not now) and a new RBNZ data series to be released later today will hopefully help to shed more light on how all of this is looking.