David Hargreaves dives back through from the start of detailed mortgage figures the Reserve Bank has now been producing for 9 years to show a picture of burgeoning first home buyer involvement and mostly shrinking investor participation

Okay, let's state the obvious stuff first.

Last year WAS a real quiet year for the housing market according to the detailed monthly mortgage figures the Reserve Bank (RBNZ) has now been publishing since 2014.

The first full year of published information was 2015, so, I've taken the figures from that year onwards.

And these figures, when the 12 months of the year are tallied up, show that for the full year 2023 there was $62.116 billion worth of new mortgages taken out in New Zealand. As the below table shows, only 2017 had a smaller mortgage total.

And as the table also shows, the average sized mortgage is now much bigger, while the number of mortgages being taken out has dropped.

As you can see, only about half the number of mortgages were taken out last year compared with in 2015, the start of our sample.

The obvious stand out line in that table is for 2021 during the mid-pandemic frenzy. Last year there was about $37 billion - an average of just over $3 billion per month - less mortgage money advanced than there had been in 2021.

Anyway, in terms of the mortgages taken out last year, the figures show that only the 2017 year had a smaller total figure. The 2017 year was the first full year after the RBNZ in mid-2016 clamped much more stringent loan to value ratio (LVR) limits on investors.

That move by the RBNZ appears to have had a significant ongoing effect.

It is worth remembering that the LVR restrictions were first applied in 2013, initially with a blanket limit for the banks that covered all of the categories of borrowers in the same way.

The RBNZ has subsequently conceded that the initial iteration of the LVRs did disadvantage the first home buyers.

And that can be seen clearly in the figures. 

What can also be seen is how investors capitalised. And how this changed when the tougher LVR rules were applied to them in 2016 onwards.

This second table, below, shows the breakdown of who has got what of the mortgage monies advanced on year-by-year basis from 2015 onwards.

*(Please note that neither this nor the other table further down the article include the fairly small amounts of borrowing 'for business purposes' in the break-out figures so therefore the figures seen for the first home buyers, investors and other owner-occupiers don't exactly add up to the 'total' figures seen, nor do the percentages add up to 100.) 

So, what we can see from the above is that after seemingly being squeezed out of the market in those early days of the LVRs the FHBs have increasingly asserted themselves as a grouping in the market. From a share of mortgage advances total of just 10.5%, the FHBs hit a record high of 23.6% for the whole of 2023, topping this off in December 2023 with a new monthly high share of 25.2%.

Now, market share has to come from somewhere - and guess where the FHBs got it from?

Yup, the investors have gone the other way, declining from 32% mortgage share in 2015 to just 17% for both 2022 and 2022.

Okay, but there is an obvious point I know you are just itching to make. Yeah, sure the FHBs are bigger in the market now, but they are a bigger part of a much smaller market. Aren't they?

Yes, sure. But that's where my final table comes in:

This one's particularly fascinating for me.

Looking first at the first home buyers, we can see that the rise in market share for the FHBs is not just all about gaining a bigger share of a smaller pie. The 26,390 mortgages taken out by FHBs in 2023 is MORE in number than this grouping took out in each of 2015, 2016 and 2017, and only just below the level in 2018. It even compares reasonably with the 32,493 FHB mortgages taken out during the 2021 pandemic spree.

On the other hand the number of mortgages taken out by investors has fallen in every year - bar one - since 2015. And remember, it was during 2016 that the tougher limits were applied for investors.

So, I said the investor mortgage numbers had fallen in every year bar one. Want a guess which year was the 'bar one' and what happened that year?

Ah, you are way ahead of me. Yep, that's right it was 2020 and it was the year in which the RBNZ dropped the LVRs entirely after the onset of the pandemic.

And the investors were in with both feet. The 42,347 mortgages taken out by the investors in 2020 remains the highest total for investors since 2016.

And to slightly labour the point, some 29,865 of those investor mortgages were taken out in the second half of 2020 - bearing in mind the LVRs officially were removed on May 1, 2020.

However, since then, the downward path has very much continued for investor involvement and the number of mortgages taken out by them in 2023, at just 21,403, was less than a third of what that grouping took out in 2015.

Other owner-occupier numbers are down appreciably too and in 2023 these were only at about half the level seen in 2015.

Anyway, that was 2023 in the mortgage market. A very slow year (for some groups) but undoubtedly pretty interesting. What lies ahead in 2024?