CoreLogic New Zealand (NZ) has tipped lending activity will slow down over the coming months with mortgage rate increases on the horizon.
This comes despite property sales activity remaining solid in June.
CoreLogic NZ Chief Property Economist Kelvin Davidson said it was interesting that first-home buyers had a monopoly on mortgage lending with less than a 20 per cent deposit.
However, he noted “nothing lasts forever” and tipped that lending activity would wind back over the coming months.
“On the whole, it’s clear that the mortgage market remained pretty busy in June, but as with a range of other property indicators, we suspect that the peak is close (or perhaps even slightly in the past) and ‘slowdown’ will be the key phrase for the next six to 12 months,” Mr Davidson said.
The Reserve Bank’s (RBNZ) latest figures showed mortgage lending activity held up at a high level again in June, with the overall figure of $8.5 billion. This was about $3.2 billion higher than a year ago.
Owner-occupiers had another strong result last month, but Mr Davidson said a fair degree of the previous investor momentum seemed to have dissipated.
The breakdown of the lending figures by loan to value ratio (LVR) showed that banks still had a cautious attitude when it cames to deposits, with only 11.4 per cent of owner-occupier loans being made with less than a 20 per cent deposit.
First-home buyers accounted for about four-fifths of the 11.4 per cent of ‘exempt’ owner-occupier lending.
“First-home buyers, and their banks, are certainly utilising the speed limits to enter the market with less than a 20 per cent deposit,” Mr Davidson said.
“At the same time, the share of high LVR lending going to investors has stayed very low, and the new breakdown relating to 40 per cent deposits of course shows the same message.”
Mr Davidson said the split of the latest figures by payment method showed that interest-only lending to investors dropped as a share of overall activity, which was interesting given that the RBNZ declined to look at restrictions on this type of finance.
He said one implication could be that demand itself has eased, perhaps as investors react to the phased removal of interest deductibility and instead look to raise their equity levels as quickly as possible.
“Clearly, when it comes to the overall themes for lending activity, the increases in mortgage rates have become a key issue in the past few weeks,” Mr Davidson said.
“Especially since those with mortgages have larger debts than before, and even a small rise in interest rates from the current low base works out to be a large proportional change, requiring an adjustment to other areas of spending.”
However, Mr Davidson explained it was far too early to be worrying about negative equity and mortgagee sales.
There were just 16 mortgagee sales in the June quarter.
Mr Davidson predicted the speed and scale of interest rates increases over the next year or two would be slow and modest by past standards – partly because of the fact that debt levels are higher than before.
He added that unemployment was falling and he expected it to continue on that path, meaning most households should be able to adjust to higher mortgage rates.