Mortgage lending flows remained very strong in September, with the figure of $7.3bn almost $2bn higher than the same month last year. That follows up similarly solid results for July and August, and although there’s probably still a degree of ‘catch-up’ property activity/lending in these numbers (after April/May’s lull), genuine new demand is clearly playing a role too.
It’s important to point out that the banks are still adhering to controlled credit policies. For example, interest-only lending is only running at about 26% of the total each month, a far cry from figures of more than 40% in 2015-16. Meanwhile, across all borrowers/loan types, lending at >80% loan to value ratio (LVR) is pretty steady at about 12% of activity. In addition, the banks are also looking closely at a borrower’s income and expenses, as well as ensuring that the debt would be serviced not only at current mortgage rates but also if those rates spiked higher sometime in the future.
In amongst all of this, it could be argued that the biggest beneficiaries of the temporary removal of the LVR speed limits have been mortgaged investors, who can now access the market with only a 20% deposit rather than the previous 30%. Indeed, the share of investor lending being approved at >70% LVRs has grown sharply in recent months. At the same time, it’s obviously cheap to borrow at the moment, and low interest rates are also discouraging cash in the bank and encouraging a shift into other asset classes (e.g. property) in a ‘search for yield’.
So could the LVR rules be bought back earlier than May 1st 2021, just for investors? That can’t be ruled out completely (Governor Adrian Orr has surprised us all before), and the longer this upswing runs the itchier the Reserve Bank (RBNZ) might feel to do something about it. However, it’s also 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 (at this stage) 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.
On balance, November 25th’s Financial Stability Report might be a bit soon to make any changes to the LVR rules, even if the RBNZ does take the opportunity at that point to introduce a Funding for Lending Programme (which would make borrowing even cheaper). And even if the LVRs are reintroduced earlier than expected, they could be ‘easier’ than last time – such as reverting to a 25% deposit and perhaps a 10% or 15% speed limit (rather than 30% deposit and 5% speed limit).