First home buyer lending in NZ likely to slow down

The first home buyer market in New Zealand is likely to slow down in 2022 as banks continue to reduce low deposit home loans according to new analysis from CoreLogic.

The latest mortgage lending figures from the Reserve Bank of New Zealand (RBNZ) shows that first home buyer loans, which are typically higher LVR loans, have dropped sharply, from 42.5 per cent in October to 36.8 per cent – the lowest figure since April.

CoreLogic said new guidelines from the RBNZ that require low deposit loans to only make up 10 per cent of all lending, will continue to stifle borrowing.

CoreLogic Chief Property Economist Kelvin Davidson said the RBNZ limits will mean lower mortgage lending throughout 2022.

“We’re now seeing tentative signs of an easing for low-deposit lending to owner-occupiers, and this will be a key trend to watch in the coming months as the banks adjust to the new speed limit,” Mr Davidson said.

“In 2017, when the speed limit was last set at 10per cent, in practice the banks operated much more cautiously at only 5 per cent of lending at a low deposit/high LVR.

“If history repeats this time around, there is still plenty of tightening yet to come for low deposit lending, which is likely to hamper first home buyers the most – just at a time when they’re reportedly also being hit very hard by the Credit Contracts and Consumer Finance Act requirements around more stringent income and expense testing.”

Source: Corelogic

Overall lending to owner-occupiers has also fallen to $3.1 billion in November which is down by $1 billion from a year earlier.

While the overall dropped slightly to $9.1 billion, which was down from $9.3 billion 12 months ago.

Mr Davidson said the fall in owner-occupier lending is, “reflecting the 40 per cent deposit requirement, tougher tax rules, and probably also the changed economics, with property yields now quite low and costs rising mortgage rates”.

He said higher interest rates will continue to reduce the loan values.

“Although the share of loans on shorter term fixed rates is dropping, it’s still fairly high, with 54 per cent due to be refinanced within the next 12 months,” Mr Davidson said.

“When you add in 11 per cent floating debt, you’ve still got about two-thirds of loans in NZ that will be exposed to higher mortgage rates fairly shortly.

“That will be a headwind for the housing market itself, as well as the wider economy as households are forced to divert their spending towards mortgage debt repayments.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.