The rise in mortgage lending in January wasn’t as strong as December, but it was still a very respectable result. Both owner-occupiers and investors continue to show a decent appetite to borrow, and the banks are able to approve these loans without needing to test the LVR speed limits. That said, high debt to income loans have become more common again in recent months, which is something the Reserve Bank will be keeping a closer eye on.

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


The Reserve Bank’s latest stats show that the value of mortgage lending in January was $4.7bn, an increase of about $660m from the same month last year (see the first chart). Compared with the hefty year-on-year gain of nearly $1.2bn in December, the latest figure may seem to be a little soft. However, December’s figure was a super-strong result, and when viewed in a longer term context, January’s reading was actually still very solid (broadly speaking, it reflected larger average loan sizes rather than a markedly higher number of loans).

Annual % change in lending flows (Source: RBNZ)


Once again, both owner-occupiers and investors recorded an increase in borrowing activity in January, with high loan-to-value first home buyers (FHBs) still outperforming the wider market in terms of growth rates (see the second chart). The message from these lending figures is similar to the CoreLogic Buyer Classification series, which has recently shown a solid market share for both FHBs and mortgaged multiple property owners (i.e. investors). Indeed, the rebound in purchases for mortgaged investors has been one of the key property stories of the past few months.

Proportion of lending at high LVRs (Source: RBNZ)


Meanwhile, the mandated LVR speed limits remain untested. Although 20% of owner-occupier lending can be approved with less than a 20% deposit, the actual figure for January was only 13% (see the third chart). And for investors, it remains very tough to a get a high LVR loan – less than 1% of lending in January (vs. speed limit of 5%) was done with less than a 30% deposit. Interest-only lending also remains contained, coming in at 26% of activity in January, versus a peak back in mid-2016 of 41%.

Share of lending to each group with a debt to income (DTI) ratio of at least five (Source: RBNZ)

On top of today’s data, some other figures recently released by the Reserve Bank help to shed more light on the renewed strength of overall mortgage lending flows, by showing the breakdown based on debt to income (DTI) ratios. The easing of the serviceability tests in August last year instantly raised the effective loan cap for borrowers, or in other words they could get approved for larger loans with the same income as before – and so it’s no surprise to see that higher DTI loans have become more common again over the past few months (see the fourth chart).

Overall, the upshot is that mortgage lending activity remains strong, and this has come alongside a rise in sales volumes, a drop in days to sell, and a rebound in property value growth. For now, it’s ‘controlled growth’ in the mortgage market, with the LVR speed limits not being tested – although the regulators (i.e. the Reserve Bank) may well be keeping a closer eye on the rebound in lending at high DTI ratios.

Looking ahead, it wouldn’t be a surprise to see mortgage lending stay pretty strong in the next few months, although the second half of the year could look a little more subdued, given that the higher bank capital requirements will begin from 1st July.