The first home buyers have continued to buy up large - but proportionately fewer of them have been borrowing very high levels of debt, according to KPMG's Financial Institutions Performance Survey for the June quarter.
KPMG says 9000 FHBs made their way on to the housing ladder in the quarter, which was the second highest number ever after the December 2020 quarter.
But significantly, fewer of the latest batch of FHBs were borrowing on high loan to value ratios - IE above 80% of the value of the property.
A third (34%) of FHBs in the June quarter borrowed over 80% of their loan-to- value ratio (LVR). This was down from about half in the two previous quarters (54% in December 2020 and 46% in March 2021).
"This is a sign that the Reserve Bank of New Zealand’s (RBNZ’s) tightening of mortgage lending standards and the general feeling of discomfort with the heat in the residential property market could be having an impact on bank lending appetite for higher LVR loans," KPMG said.
The banking sector had a strong quarter, reporting a combined Net Profit After Tax (NPAT) of $1,451.9 million. This was a slight dip (of 11.63%) when compared to the previous quarter ($1,642.9 million) which was a record result; however, it was still one of the strongest quarters ever and almost twice that of the same period last year - which was lockdown affected.
And the strong latest result was largely driven by the continued growth in mortgage lending.
Lending overall increased by 2.20% (to over $473.5 million) compared to the previous quarter, but mortgage lending rose by 6%, KPMG said.
"While March 2021 retains the record for the largest amount of mortgage lending in one month, each month in the quarter ended June 2021 saw over $8 billion of new residential mortgage lending."
In fact that trend, according to the RBNZ's monthly figures, continued into the September quarter as well, and for the 12 months to the end of July there was just over $100 billion of new mortgages advanced.
KPMG said the composition of the banking sector lending portfolio has seen a steady increase in housing lending and a decrease in consumer, business and agriculture lending.
"While house prices, and with them the levels of mortgage lending, overall continue to rise, the number of investors taking out new mortgages has dropped. The lending growth is largely driven by owner occupiers and first-time buyers."
KPMG said this could be the beginning of the impact of the recently introduced tax changes deterring highly leveraged investors "or the achievable yields from renting starting to look unattractive at such high purchase prices".
The RBNZ is currently consulting on the further reduction of the amount of high LVR lending that banks can do, with the intention to implement any new settings from 1 October 2012.
Following this, the RBNZ intends to consult on potentially implementing Debt-to-Income (DTI) restrictions.
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52 Comments
Indeed. That's driven a bunch of our young educated to head to Aussie and historically the UK, which is clearly a poor outcome for tax generation in NZ. It seems a lot of them are trying to get back at the moment with MIQ well over subscribed.
One wonders why those stuck here paying all the tax for to prop up the ever increasing tax takers have not entered the leverage property game to rinse their income tax position to a more neutral one. Oh wait...they have, including a lot of politicians...how many rentals does Helen have again. That is just making the situation worse by driving rents and mortgages ever higher (in the name of less tax), thus driving future tax creators offshore (no tax), and driving employers to have to pay higher and higher wages to retain an ever decreasing talent pool (those with skill who actually want to work). This in turn makes businesses less profitable and thus... generate less tax.
Its a circular argument that's leading us down the drain financially. Young tax payers leaving, more tax payers retiring into tax takers, those at the bottom are always tax takers, and those in the middle increasingly becoming tax takers. It doesn't take advanced education to see that the math outcome is becoming more and more out of balance.
At least the banks got a greater and greater debt noose around NZ and all of its assets...tui.
Not sure if you've read 'Tipping Point' by Malcolm Gladwell...but your comment above reminds me of his theory. You do wonder where the inflection point will be, in terms of what has been great for a large number of people, suddenly becomes unbearable for enough in order for significant change to occur. It may surprise people when it happens and appear to come from nowhere, yet if you have been looking close enough, you can see all the signs are/were there for it to happen.
From my perspective, there are more and more people I talk to saying things like;
- 'I've done really well for myself by I worry about how this is going to impact my kids'
- 'things really need to change to give our children a decent shot at life'
- 'why is my house selling for so much, and why is the one I want to buy so expense, this is actually ridiculous'
- 'this can't be sustainable'
- 'has the world gone mad'
- 'my house is worth a lot of money but I don't have much in the way of savings, and what I'm receiving in interest is negligible, will I have to downsize my house sooner in order to free up cash to live from in retirement?'
- 'young people should leave and go overseas because they have much better opportunities there'
- 'do central banks really have societies best interests in mind?'
- 'NZ is %#@#%%, I'm going overseas'
- 'even thinking about saving for a house is so depressing and its making my mental health so bad'
- 'it must be tough for young people, but how do I change things to make life easier for them?'
The list could go on, but these have been the points of discussion the last 12-24 months with a number of different people across different age groups. Change may arrive sooner rather than later, but if it doesn't, the near future doesn't look stable - socially or economically. We need change in order to bring about economic and social stability.
The question is who is going to deliver it politically and what does it look like?
The fact that its a global thing, and that no one in power seems to be willing to do anything about it is very perplexing. The longer this goes on, and its been going on long enough, the worse it will be for everyone. Warranted or not, I would like to have seen interest rates rise well before now, for that same reason.
I recall back in the 70's and 80's literally a full plane load of kiwis were moving to Australia every single day - for better work options. Will we now see the same for 'affordable housing' ? You can still buy a house in the regions there for under $300k
Imagine a Japan like scenario where house prices fall for the next 30 years....which isn't impossible given the insane price appreciation we've witnessed the last 40 years - completely out of line historical trends when you look in real terms over the past 100+ years.
So its possible that a person might be able to buy 5 houses with their kiwisaver at the age of 65 if that outcome eventuates. House prices keep falling, and you keep adding to kiwisaver...
i.e. the cycle reverses....you'll say impossible, but its in your personal/financial interest to disagree with that possibility.
"First home buyers borrowing in big numbers - but not stretching themselves as far financially"
In Auckland where median house price is 1.3 Million and FHB buying without stretching than FHB in Auckland should be very rich community to not borrow in extreme and easily afford to buy a house alternatively many are buying pigeon hole for million under FOMO and data will reflect otherwise.
If FHB are not borrowing in extreme that why the hesitation to bring in DTI.
Above data/headline could be to mislead reserve bank or give opportunity to Mr Orr to use it to justify for not implementing DTI and as Mr Orr is reluctant will grab this reason by both hand.
Above headline, now when RBNZ is about to announce DTI raises doubt over its intent - would be interesting to know David's view on this
Stuart
What has "Auckland where median house price is 1.3 Million" to do with FHB?
FHB have in the main always bought in the lower quartile . . . . . that has been that way for the past 50 years. Due to an affordability compromise my first home was in a lower socio-economic area of Auckland way back in 1980.
Yes its currently tough, but you are not in touch with reality if FHB expectations are a median priced Auckland house . . . it never has been.
Boss even pigeon holes are selling million dollar plus.
So how come last year houses for $850000 and units for $650000 which were e unaffordable are affordable today at 1.3 million and million dollar. What is happening not only in housing but also in stock market is manipulation by reserve bank and government - worst time ahead, when hard to say as everyone printing and throwing money therby pushing the can......
The emergency low interest rates allowed people to be able to service larger mortgages. Although different banks apparently stress test people between 5-7%, I wonder how many people will really be able to service those mortgages when interest rates go up to those sorts of levels, without affecting their life. Especially with inflation rising. House prices in my area have essentially doubled in the last 3-4 years. The question is, will house prices be allowed to fall back in price.
I sense an opportunity:
Me: I hear you could lend more to high LVRs but don't need to because FHBs are somehow finding deposits, and that the RB might be going to tighten up on high LVR lending, thereby closing off a potential market for you
Bank: Kinda
Me: OK, I'm thinking of taking out a massive mortgage to buy a shitbox
Bank: What you got?
Me: Next to nothing
Bank: ...we could be interested
20% is a big ask but still achievable for couples with decent jobs and who have been saving for a few years. 20% deposit on 1.3m = $260k. Saving $500 per week p/p would take 5 years to save that. The 34% using less than 20% could reduce that time to a few years, or purchase at the lower end of the Akl market. Plenty of properties going for under a mil out of the CBD.
Saving $500 per week p/p
You make it sound so easy...
Nurses, police(wo)men, teachers etc.: Hear that? Just save 500 per week and you have a house, easy as! It's only 50% of your net income! Get in quick!
Wait, what's that? Rent is another 30+% of your salary? Come on, don't be such a p***y... just eat rice for the next 5 years and you're good.
5 years later: average Auckland house price is now $2 million. Oops, Sowwwwy.... Just need to save another 140k. Hmm I guess you could eat half portions for the next 3 years? You know rice is a luxury in some African countries!
We don't need Nurses, police(wo)men, teachers, front line workers & council support.
It is advised to them, please leave NZ or be renter for your whole life.
Who need education, medical assistance & security these things are less important in comparison to property increase in NZ. Labour is doing right thing the prices should increase more.
And if they go to Australia that can get a house without needing to worry about a cheesy scroll, work, wife, or money.
https://www.youtube.com/watch?v=die5eWFp2Gc
I wonder if migration patterns are having an effect.
Although net migration is pretty much zero, there has been a net gain of around 14k NZ citizens.
I wonder if we've had quite a few kiwis coming back from the likes of the UK with plenty of pound stirling in tow.
Just a theory which could be wrong.
The problem they have is that the pound is only worth about 2 dollars these days and that UK house prices haven't gone up at the same rate as ours. So effectively they've gone backwards relatively.
Plus, didn't real wages decline in the uk over the past decade or so? While taxes went up? The ftse is at the same level it was in 2016!
YHL
I expect that KPMG probably rely on RBNZ mortgage data. RBNZ monthly data (hc31) goes back to August 2014.
For the past year the actual number of FHB mortgages has been highest over that period.
Surprisingly despite the common perception, over the past year more FHB have been purchasing properties than over the past seven years. You may want to note that compared to the period 2014 to 2015, the current monthly number of FHB mortgages are around 40% to 120% higher in number than back then.
Refer column U in the data file spreadsheet https://www.rbnz.govt.nz/statistics/c31
I think to put this in context we need to compare the data with the Australia.
Throughout the world, house prices are rising due to increasing people working and staying at home due to lock downs and stimulatory support.
The trend is expected continue for some time and action taken to dampen the lending will eventually lead to a flow on effect on cost of production, malaise economic activity and escalating consumer prices.
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