First-home buyers (FHB) are continuing to stretch themselves to get into the property market.
A record portion - 19% - of new residential mortgage lending went to FHBs in January, according to new Reserve Bank (RBNZ) figures.
FHBs have been taking an increasingly large share of the pie since the RBNZ’s data series started in 2014, when around 10% of new mortgage lending went to FHBs.
At $889 million, the amount borrowed by FHBs was up 27% from January 2019.
This was a much bigger jump compared to the increase in total mortgage lending across all borrower types, which was up 16% to $4.71 billion.
While lower than the months preceding, this $4.71 billion was the highest for January (since at least 2014).
FHBs continued to stretch themselves, with 40% of new mortgage lending to FHBs going to those with deposits of less than 20%. Pre-2019, this figure was in the late 20%s and 30%s.
Of all the lending to borrowers with deposits of less than 20%, a record-high 71% went to FHBs.
Investors borrow 31% more than a year ago
As for investors, they accounted for a fifth of new mortgage lending - the highest portion since September 2018.
Investors borrowed a whopping 31% more in January 2020 ($951 million) than they did in January 2019.
Of all lending to investors, 15% went to borrowers with deposits of less than 30%.
This was broadly on par with much of 2019 and 2018 and a huge fall from before October 2016 when the RBNZ tightened loan-to-value ratio (LVR) rules, further restricting bank lending to borrowers with small deposits - particularly investors.
Owner-occupiers steady as she goes
With investors and FHBs borrowing proportionately more, owner-occupiers took a back seat.
They made up 60% of new mortgage lending ($2.81 billion) - the lowest portion since July 2018.
However lending to owner-occupiers was still up 9% compared to January 2019.
Only 5% of lending to owner-occupiers went to those with deposits of less than 20% - a similar portion to that of recent years.
No major shifts in high LVR lending
All eyes will now be on whether the RBNZ will change LVR restrictions when it releases its next biannual Financial Stability Report on May 27.
Across all borrower types, the portion of lending to those with deposits of less than 20% sat at nearly 11% of all borrowing. Given this is where it has been sitting since LVR restrictions were loosened in January 2019, the RBNZ might not have reason to change its settings.
The current rules mean at least 80% of owner-occupier lending must be to those with deposits of at least 20%. Meanwhile at least 95% of investor lending must be to those with deposits of at least 30%.
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62 Comments
Dad, remember the other day when you said it would be sunny tomorrow, then it rained?
Remember when you said first time buyers borrowing very large amounts of money to buy a house in one of the most overpriced markets in the world were doing the smartest thing eva, and then there was Corona Virus ... and they lost their jobs, couldn't get new jobs because the economy was in dire straits, and there were all these mega-mortgages sitting around with no-one to pay them?
It's great as property is linked to credit creation making us all richer. Negative rates are coming and bigger government surpluses. Governments can't spend into the economy as it plays havoc with the banking systems Capital ratios! Even the imf said during a recession spend your surplus on unemployment benifits and tertiary education.
And leave the banks to re inflate the bubble.
Seriously xingmowang and Ocelot: What illogical and ridiculous comments.
Please explain
- how the current prices of houses are paying the retirement of baby boomers?
- whose plan was it and why are houses going to return to affordable prices after baby boomers have passed?
As anyone with half a brain knows, house price inflation since 2012 is due to significant falls in interest rates and housing supply.
Just because a home may be worth more, this does not generate any income or additional money. And as for the low interest rates, those baby boomers with term deposits to provide additional income for retirement, have suffered with minimal returns while those with mortgages - typically the younger home owners - have been significantly advantaged.
Get over your ridiculous comments looking for a scapegoat by baby boomer bashing - your postings are nothing but that.
That's not really the case as there is no historical whack to be out of. NZ in its current form basically didn't exist until 1986 and even then, things have changed a lot. Nations vary from one another, cultural priorities, spending habits etc, make a comparison to the past, or to other nations, nearly pointless.
At its core, it is not known what the long-run average interest rate should be, and thus there is no way to know what the fair multiplier between income and house prices should be.
Currently, the strongest predictive models say that the best estimate of fair value is the value of the assets today.
Yeah, they called it being a "stay at home parent".. one parent worked, one raised the demonspawn. Is that better than the 2nd parent going to work and paying for childcare?? Better for the family, not better for the "economy" apparently.. except in many ways we had a stronger economy back then, hmmmmm..
Foot soldiers are not trained to explain how their employers manage risk in the greater scheme of things. They're trained to close sales and cross sell. The subprime mortgage crisis was partly uncovered by qualitatively understanding the attitudes and behavior of the foot soldiers. If you don't believe me, go read Michael Lewis' 'The Big Short.'
The question to ask is whether the Government will put a freeze on mortgage repayments if the economy turns belly up and FHBs start losing their jobs and income.
The big overseas banks have done exceedingly well out of NZ so I think they should be prepared to take the bad with the good.
New Zealand's very own sub-prime mortgage crisis in the making.
Next step:
12 August 2019
The Reserve Bank has today published a summary of submissions on its consultation proposing a new mortgage bond standard aimed at supporting confidence and liquidity in New Zealand’s financial markets.
https://www.rbnz.govt.nz/news/2019/08/submissions-received-on-new-mortg…
Maintenance? As an owner occupier we're not in the business of punching holes in walls and smashing up toilets. "Maintenance" seems to be often thrown out there as a big downside to home ownership....almost like all home owners do on their weekends is furiously rehang doors, replace wallboards and refix the roofing iron. Vacancy costs....huh?
I understand the potential for a false economy with travel time/costs. The numbers aren't going to stack up for everyone.
Even a simple corrugate iron roof is about $15k to have replaced, and they don't last forever. A few rotten weatherboards here, a new hot water cylinder there, and pretty soon you have $25k of spending over a few years. And price up kitchen renovations with anything other than cheap particle board junk cabinetry.. its eyewatering, even if you aren't going for the $700 each Hans-Grohe mixers and other high end stuff. (automatic cupboard and drawer opening.. seriously, how f'n lazy are you?)
Yes however a lot of that shit doesn't appear overnight and if it does (hot water cylinder that is) then tough luck. Mortgage top up and get on with it.
I understand it's probably not ideal if you're 95% LVR on a run down dump in Auckland paying upwards of 50% household income on the mortgage.
Vacancy costs, is the cost of when it is empty, and you are not getting rent.Generally you put aside some fo the rent to cover this, when it isn't being rented. Not sure it people who own rentals do this in NZ, but it is done overseas.
Maintenance costs are money you put aside from the rent you get, to cover replacement costs of things such as roof, old windows, weatherboards, repainting, plumbing, kitchen, or just ongoing repairs and replacement. A lot are big ticket items. Also to upgrade the house when changes are needed, such as upgrading insulation, installing heatpumps, so the house is warm etc. It isn't easy being a landlord these days, and teh rules will likely only get worse, as standards are lifted.
There are a lot of other costs apart from interest. People seem to be buying at the moment for investment, willing to take a haircut on the ongoing costs, to benefit from the capital gain. So effectively it is costing them to house other people, until such a time they sell the house, but whether they actually sell for a profit is a gamble.
LOL, because the equation is the other way around.
If I rent a house at prevailing no-yields of ~2.0% in Auckland that is far less than mortgage interest on a similar property (~3.5%).
And that's before maintenance, insurance and rates... oh and without the risk of leveraged virus losses.
Phuueww.. just get in time, the door will be shut shortly... Wait, how's this calculation works? - if the RE forever increases, no major correction, just keep on leveling etc. - Then, what will happen to the next young generations. How about if they are all moving out to more safer greener pasture? - What is going to happen to those Services/Operational staff, that keeps on renting, how is it possible for them to afford a dwelling of their own? - when theoretically their loan burden should get even higher & longer to service.My advise to NZ young healthcare professionals? - leave NZ, let their healthcare systems to be staffed by imported workers.
Life is more complex than just following one side of the story, following left/right directions? guaranteed that you will be walking in circle, following DGM? following RE agent? - The ability to timing the walk, left, right foot is the key, the yin, will not complete without the yang.. and when you spin it fast? it's showing grey rather than black/white. Ability to restraint is also a good human trait - good luck everyone, just remember Wealth doesn't mean a toss to worry about compare to your most precious one, your Health. Trust me, hardly any of those RE agent/pro-marketer, boasted as such.. during the consultation with their own GP, which surely not all of them owned a house by the way.
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