It was no surprise that the Reserve Bank’s stats on overall mortgage lending activity were strong again in February. But the figures also showed that high LVR investor lending has slowed pretty sharply so far in 2021, even though the official rules didn’t kick in again until 1st March. No doubt the Government will be pleased to see that slowdown, and on top of yesterday’s measures (e.g. Brightline extension, ending of interest deductibility), we suspect more is still to come for investors – e.g. limits on interest-only lending. See our reaction to yesterday’s housing policy announcement here.
The Reserve Bank’s (RBNZ) regular flow of mortgage lending statistics is up and running again after January’s data breach and the latest release showed continued strength in activity in February. The overall total for the month of $7.6bn was $2.0bn higher than the same month last year (with February 2020 being the final ‘normal’ month of activity before lockdown), the sixth month in a row that the annual change has been at least $1.6bn – and December’s rise was more than $3bn. As the first chart shows, both owner-occupiers and investors saw solid annual growth in activity in February.
However, more interesting than the overall totals was the breakdown by loan to value ratio (LVR). The mandated LVR rules didn’t officially start again until 1st March, but we know that the banks themselves moved ahead of the RBNZ and this is evident in the data – as the second chart shows, the dollar value of lending to high LVR investors has weakened so far in 2021 and the share of overall activity has dropped sharply from 15-16% over September-December to 11% now.
Meanwhile, interest-only (I-O) lending has roared back into the headlines in recent weeks and it’s looking likely to us that restrictions for investors will be introduced, with the Reserve Bank set to make a decision about this in May. To be fair, the share of investor lending flows on I-O terms has already fallen over time, from a peak of 55% in 2015-16 to around 40% now (see the third chart). But that’s probably still deemed to be too high by the authorities, and it wouldn’t be a surprise to see some kind of speed limit introduced – for example, perhaps only 20% of investor loans on I-O terms.
More generally, the housing market clearly remains at the forefront of public discussion at present, and the availability of mortgage credit is a large part of that. Until recently, our Buyer Classification series had been showing that first home buyers (FHBs) were managing to sustain a solid market share (e.g. by using their KiwiSaver funds), but the data for January and February suggest that they are now finding things much tougher when going up against those investors who can use previous equity gains and bolster their funds with more debt.
Of course, the game is now changing for investors and the Government certainly wants to enable FHBs to continue to buy property. In amongst all of this, however, in some ways we might be ‘lucky’ these are the issues on the table, and not the converse scenario of large falls in property values and the financial stability risks that would involve. Indeed, the mortgage payment deferral scheme ends on 31st March, and as the fourth chart shows, by contrast to what had perhaps been anticipated, mortgagee sales remain almost non-existent.