Key Facts

  • Household lending activity is increasing again, with new borrowers likely to face higher mortgage rates for longer.
  • Reserve Bank data indicates that new lending flows from August to October rose by 4% compared to the previous year.
  • The total value of lending, according to CoreLogic’s analysis of the data, is still below the levels observed in 2020 and 2021.
  • Kmormorelvin Davidson, Chief Property Economist, anticipates that mortgage rates will remain high for an extended period.
  • Restricted access to low-deposit home loans ensures borrowers keep up with higher interest rates.
  • Mortgage arrears remained low in October, even as they climbed from 1.25% to nearly 1.3% of mortgage holders.
  • Loan-to-value ratio rules continue to significantly impact the lending landscape, with only a small proportion of investors and homeowners borrowing with lower deposits.
  • While interest rates rise, mortgagee sales are low as borrowers manage higher financing costs.
  • The use of loan-to-value ratio rules for a decade has provided some protection for the housing market.
  • CoreLogic reports only 41 mortgagee sales in the third quarter, a significant decrease from the 700 to 800 during the global financial crisis.

Article Summary

New Zealand’s household lending activity is gearing up, according to the latest Reserve Bank data. However, new borrowers are cautioned to brace for longer-lasting high mortgage rates. The bank’s data reveals a 4% increase in new lending flows between August and October compared to the previous year, following a period of sombreness for 12 to 18 months.

However, property research firm CoreLogic found that the total lending value still falls below the levels seen in 2020 and 2021. Chief Property Economist Kmormorelvin Davidson echoed the sentiment, suggesting that it is reasonable to assume that although mortgage rates may not increase significantly, they’re expected to remain high for a longer period. This high-for-longer environment is largely due to the Reserve Bank’s firm stance on inflation.

Davidson also highlighted the restraining effect of restricted access to low-deposit home loans, which has helped borrowers keep up with higher interest rates, resulting in low mortgage arrears. Loan-to-value ratio rules have had a significant impact, with only a minor portion of investors and owners securing loans with low deposits. Despite the rising interest rates, mortgagee sales remained low, indicating borrowers’ ability to handle higher financing costs.

In his final remarks, Davidson commended the loan-to-value ratio rules, which have insulated the housing market over the decade. CoreLogic’s recent data echoed this sentiment, recording a strikingly low number of mortgagee sales in the third quarter, a drastic reduction from the peak seen during the global financial crisis.

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