The new mortgage approval figures released by the Reserve Bank every month are one of the most important sets of data the central bank publishes.
Unfortunately they are also misleading.
Not because the figures are wrong, but because they don’t tell the full story.
The RBNZ figures tell us how many new mortgages were approved each month and the value of those mortgages, broken down by their borrower types e.g. existing home owners, first home buyers, investors and so on.
They also provide additional details such as the number of low equity loans approved each month, which all seems quite comprehensive.
But something about the numbers doesn’t add up.
Over the six months from March to August this year, New Zealand banks approved 159,930 new residential mortgages, according to the RBNZ.
But over the same period of time the Real Estate Institute of NZ recorded just 46,276 residential property sales.
How could the number of new mortgages being approved be more than three times the number of property sales?
When interest.co.nz put that question to the Reserve Bank we were told that up to about 5% of the new mortgages approved each month were the result of borrowers switching banks, which is a relatively small proportion, but it accounts for about 15% to 20% of new mortgage approvals by value.
Also, some borrowers might apply for mortgages from more than one bank to see which one would give them the best deal, which can result in several approvals but only one of the deals proceeding.
And of course there are always a few deals that don’t proceed for other reasons.
Perhaps surprisingly, the biggest group of new mortgage approvals each month was for mortgage top ups.
That’s additional money loaned to existing mortgage holders, freeing up cash to spend on other things.
Those other things could cover a multitude of spending sins.
It's likely that much of it will be for home improvements, but much could also be for other spending.
But whatever the money is used for, it's not small change.
According to the Reserve Bank, top ups for existing mortgage holders account for about half of all new mortgage approvals, which puts the number of new mortgages being approved to buy houses squarely in the minority.
That paints the monthly mortgage approval figures in quite a different light.
According to the RBNZ, the figures above are approximate, because they bounce around from month to month.
Which suggests the Reserve Bank knows exactly how many borrowers are taking out top up loans each month, and how much they are borrowing.
It turns out the RBNZ does have all of that information, it just doesn’t release it.
It says it only provides the mortgage top up data to other government agencies, although we don’t know which ones.
It’s as though this information is the Reserve Bank’s dirty little secret, revealed to a select group of public servants to provide them with some financial titillation as they gather around the morning tea trolley.
That shouldn’t be the case.
The information is important because, among other things, it would help to explain why the trading banks are making so much money.
For them, mortgage top ups are like upsizing your fast food order, but with the addition of a few zeroes on the amount involved.
“Would you like a little more debt with your debt? We’ve got debt on special this month,” is their refrain.
“And we’ll chuck in free membership to our VIP Debt Club to give you extra special debt on top. So tuck in.”
Lovely.
The mortgage top up figures would also shed some additional light on the impact of the Reserve Bank’s credit management policies on the wider economy.
Mortgage top ups encourage people to use their home like an ATM machine, drawing out big chunks of dosh to spend on all sorts of things.
If we knew how much money was being pumped into the economy each month in this way, and the size of the resulting debt that was accumulating, there could be a debate on whether the rules that govern mortgage lending, such as loan-to-value ratio limits and even interest rates, should be different for mortgages used to buy a house than they are for those used to free up cash.
When interest.co.nz asked the Reserve Bank for more detailed data on mortgage top ups it resulted in a truckload of procrastination.
The good news is that we were also told “it’s something that’s in the pipeline,” although we weren’t given a timeline.
The funny thing about pipelines is that they come in all sizes.
Some are quite short and others stretch across continents.
So we could be looking at days, or weeks or even decades before the data pops out the other end.
But when it does we’ll be sure to let you know.
The comment stream on this story is now closed.
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61 Comments
Cheapish debt for the kitchen reno, spa pool, boat, private school fees, or winter hols to Fiji or Qeenie perhaps?
Excellent questions by the way. Interest dot co is light years ahead in the NZ media.
Light years indeed- I completely agree
Three people I know in the last year got top ups for 300k, 600k, 900k.
That was to reno there existing house rather than trade up.
I would say a lot is that and development of new housing / loans for new builds.
Top up for deposit to buy another investment property with another bank, to avoid declaring it with the first bank. 101 lesson from Property Seminars.
Edit. Property speculator coach friend advises many lie on applications.
you wouldn't be able to avoid declaring it. It would turn up on your credit check.
I'm actually not sure I understand how this article is some sort of big reveal... of course it includes top ups, where else do you think the RBNZ would report them? Ive seen comments to that effect in previous articles about this dataset... is it a slow news day?
Ive seen comments to that effect in previous articles about this dataset... is it a slow news day?
Greg is simply pointing the extent to which the sheeple are reliant on mortgage top ups. And quantifies that as much as possible. It's quite relevant to understand the type of economy running in NZ.
Top ups always have been part of the lending economy - arguably better than consumer debt products like credit cards and personal loans, when structured properly. Isn't that ostensibly the point of a lower OCR, to encourage consumption via debt?
Regardless, top ups arent as much of a threat to financial stability as increasing sales prices -- top ups my make up a reasonable number of the new loans, but not likely a material value of new loans. Trying to say stricter rules needed is a bit silly - arguably those who've evidenced repayment history should be able to borrow to renovate, adding value to their asset, or to purchase another asset like a car etc. It's likely much safer to the system than a FHB buying a $1.2m do up.
Isn't that ostensibly the point of a lower OCR, to encourage consumption via debt?
OK. You can add 'investment' to consumption. Furthermore, why not just allocate debt directly to everyone (individuals / businesses) from the central bank if it's so desirable?
Top-ups only make sense with increasing sales prices
its a reveal becasue the top ups due to cheap interest rates has been large-i suspect significantly large.
AS interest rates rise it means more people may be caught in a awkward position than just those who recently bought a new house.
The amount of money that is redirected from discretionary spend into interest payments may be a lot larger than most people think and depending on how much people topped up their loan by (ie did they top us to 80% of their equity) - its a possibility there could be a "lot" of people who would be in negative equity if house prices fall 20%
The amount of money that is redirected from discretionary spend into interest payments may be a lot larger than most people think
Right. And this also helps to define what exactly is the 'wealth effect' and how it's being executed.
If it’s put on the house debt it’s not discretionary spending
Well, the repayments aren't once it's on the house debt.
Very dangerous lieing to a bank, as you break the agreement and they can cancel all mortgages or credit limits and you have to firesale your properties.
They can see ALL your applications with other banks as credit checks are done when you apply for a mortgage and all of those are recorded.
And also if they do a credit check, they can see all your credit cards and finance history.
Plus if you have bank accounts with automatic payments to other banks for those hidden mortgages you lied about the bank will see those.
Its also defrauding the bank so you could also be charged for financial crimes.
The banks will see your mortgages with other banks, not sure your coach friend is telling you the truth.
It has happened in the past in the rural sector where farmers never disclosed seasonal loans from stock firms and HPs to their bank when applying for increased mortgage. There were some notable sell offs.
The Kiwi equivalent of profit taking.
Profit taking at the very highest risk end of your leveraged asset, just wait until you get the email alert about the margin call...
Imagine if interest rates were actually tied to risk!
More like an illustration of how the debt-based property bubble has become an essential component for the wider economy
The Aussies had an advertising campaign not that long ago, promoting "Equity, mate!"
And is this how it's turned out - and what awaits us?
RBA hikes to trigger “largest property correction on record” When the RBA does seek to normalise the cash rate, prices should fall, as night follows day.... The model .... suggests dwelling values could drop by about 33% following 100 basis points of hikes.
https://www.macrobusiness.com.au/2021/11/rba-hikes-to-trigger-the-large…
Fascinating. Thanks for publishing this.
Housing mortgage top-ups using increased equity for small business purposes mostly likely very common given the much higher rates for business loans.
Would account for seemingly low number and amounts of lending for business purposes.
Yes P8. SME lending wrapped around housing equity.
Yep, I would expect (hope) that and renovations make up the majority.
Or an indication of how leveraged SME owners are in the pandemic
Would also further explain why you have wages in the middle/white collar professions failing to keep up with living costs - the wage pressure isn't there because people are just drawing down against unrealised equity.
Information like this is collected for a reason, has value, and is collected using public money.
Not making the information public means some people are privy to the information and most are not.
So some people benefit at the expense of others.
That is called insider trading, which happens to be a criminal offence, punishable with up to 5 years imprisonment.
Fair point. However, I suspect any delay in releasing more detail will be no more sinister than needing to ensure they have a process of classification and aggregation that could not reveal the private info of any individuals and their enormous top-ups.
You can request a top up through the ANZ app, it looks like you don't even need to talk to someone. They make it easy because it's easy money for the bank
Not entirely true. You can apply through the APP, but you still need to talk to someone. We went through this a few months back, and we were going from 70% to 65% equity at the time.
Nice article, Greg. A bit of good old journalist digging.
Is this how people finance their $200,000 Audi (that isn't a company car)?
Might be some Audi’s going cheap on TradeMe soon 👍
Ferrari and Astons in the GFC. Many leased by...ahem "RE agents" attempting to portray their "success".
Sunlight is a good disinfectant.
Awesome work, Greg. Good to see that proper investigative journalism is not dead yet.
Not really surprised some people never end up paying off their house, not only because some are interest only, they keep using it like an ATM for the new car of whatever. We have a huge chunk of the population living beyond their means.
If we knew how much money was being pumped into the economy each month in this way, and the size of the resulting debt that was accumulating, there could be a debate on whether the rules that govern mortgage lending, such as loan-to-value ratio limits and even interest rates, should be different for mortgages used to buy a house than they are for those used to free up cash.
[Opening profanity deleted. I will respond to the rest of your comment in the morning YHL.- Greg N.]
The last thing we need is even more complexity added to the lending process. Every few months there is more and more bullshit compliance imposed on the industry by regulators and politicians who have no idea what the impact of their shower thoughts are on those of us who have to implement whatever the new rules are, all while the media cheers them on.
This article is factually incorrect as well - the RBNZ doesn't keep any record of loan approvals and the banks don't report that to them. The numbers you're referring to are loan settlements and there may be multiple settlements as part of one loan purchase. A top-up in November might fund the deposit to pay the real estate agency at auction with the balance coming due at the purchase in December. That's two applications and two settlements.
Would be great if there was more acceptance by media and politicians that access to credit is a good thing for consumers, it increases social mobility and reduces inequality. The more regulation gets piled on the smaller the pool of borrowers gets as credit is restricted. Without it the only ones able to buy assets are those who are already wealthy. It's no coincidence that inequality has increased over the last decade since LVR restrictions, royal banking commissions, CCCFA and additional regulation of lending have prevented borrowers from accessing credit.
- Greg Ninness responds: I'm afraid it's your comment that is factually incorrect YHL. The Reserve Bank is quite clear about where it draws its data from. Here is their official explanation. "which are finalised offers to customers to provide mortgage loans or to increase the loan value of an existing mortgage loan, as evidenced by the loan documents provided to the borrower." It's data is drawn from finalised offers, not settlements as you suggest. I'll leave it to our readers to make up their own minds about the relative merits of your theory that "access to credit is a good thing for consumers."
The data sounds pretty meaningless in that case Greg. A borrower can go and get half a dozen approvals for a single purchase then choose one based on the best terms or rates.
What is the problem that is trying to be solved in the first place even if it is for consumer or business spending? Should borrowers be forced to pay more interest and higher fees to banks? Should they have less access to their equity and the liquidity of the asset reduced to the extent that the only way to realise it is to sell the asset?
I had to have a laugh at "...access to credit is a good thing for consumers, it increases social mobility and reduces inequality...". We have dramatically increased access to credit in the past 30 years or so. I assume inequality must have dropped dramatically as well then huh?
Maybe you are saying that if we had less regulation everything would work out peachy? Because the last time I looked, the financial services industry finds anyway it can to make a buck, even if it means bending/breaking laws designed to protect the very financial system they operate in.
I laughed to. Reality is "excessive profit sent to foreign owners, while renters, and occupier mortgage holders are enslaved to achieve that" is a good thing. Please....
First home buyer activity peaked in NZ in 2004-2007 before any of this regulation came in
Crikey how does this potty mouth get through the moderator! I put our prime ministers name in the same sentence as the word "princess" and it gets cut!
She's more of an incoherent Aunt by now
I'm glad he/she did. There is not enough swearing on this site for my liking.
It’s a good point though, anyone who has ever applied for a top up will know the process is a complete waste of time; a million and one questions no matter how much equity and how low risk you are. And it’s all just checkboxes, I’m sure at the end of the day they will approve you somehow. Then they try and sell you more insurance just to make sure.
Yikes this is diabolical economic reasoning - if followed to its conclusion then we should really just hand out debt to everyone who wants a bit - oh hang on - they did that already and it caused the GFC - let’s remember that washing easy/ cheap credit around increases asset prices more than anything else (assets that are mostly owned by already wealthy people or at least almost wealthy people) - which WAGES can never keep up with - hence the gap grows ever larger between those who have and those who don’t yet. The top ups will be for people on the lower end of the ‘have’ spectrum - the ones at most risk of dropping back into ‘have not’ land - hence understanding what trouble easy credit has lured them into is a logical thing to want to understand.
Yeah, "moral hazard" anyone? I guess people on the front line don't really care, it's all about writing more loans, bugger the consequences!
I suspect a lot has been put into business or other properties (transfer the deposit over), perhaps home renovations while money is cheap, which while it is debt it should in theory result in higher valued homes.
Curious how much has been a gift to help a child buy a house.
Not so much on world trips!
Thanks Greg, important details here about top up mortgages. You are right in thinking that some will go on consumer spending. But several commenters have mentioned loans to SME. And I think this is likely significant for the economy, but also missing and underreported.
I think it would be good to tease out loans secured against property but for business purposes. I.e., the loan is for SME purposes, but is secured against the owners home because the interest rate is significantly lower and the available term is longer.
Personal example from some years ago. Borrowing to setup a business. Needed $485k. Loan was structured as:
- $165k business loan at 9.6% over 5 years
- $60k revolving credit at 6.74%, on demand
- $260k home loan at 6.24%, over 30 years
all secured against assets of the business and home.
Paid off the business loan ASAP (inside 3 years), transferred all borrowing to home loan to secure lower rates. Paid all of it off inside 5 years.
No home was purchased, sold, harmed or otherwise interfered within in all of this. We just kept living in it.
This was all about setting up a business. It was all business lending. But it would have appeared in the home lending figures because it was secured against a home, because in this mad world in which we live, non-income earning assets that are widely desirable (homes) are better collateral than income earnings assets (businesses) that are hard work but can be hugely profitable.
This home lending for SME purposes is also missing in the data, I think.
I don’t think they really ask what you want it for, isn’t that your own business? People probably always say for renos regardless of whether it is for business or pleasure.
They definitely do ask. In fact I had to provide full quotes for every cent in July this year to go from 90% equity in my home to about 75%.
When I told my mortgage manager some of it was actually to tide me over and maintain mortgage repayments while I take a year off next year with a newborn, she told me she couldn't lend for that and that I needed to get more quotes I didn't intend to follow through with to cover me there and give her the evidence she needed to process the application.
Excellent.
Like to see you highlighting......how come RBNZ never thought the need .....just because it suits their narrative in creating FOMO.
They use every trick and policy to promote ponzi and when it comes to control will deny or manipulate, not realising that now with internet and social media, is hard to get away with smirk.
Would an OIA request expedite the delivery of information?
Those can be a real debacle of a process, drawn out with redactions galore.
Done one once, never again!
Does feel like there are a heap of brand new European cars driving round Wellington at the moment
Look up the 'buy, borrow, die strategy'. It works well in NZ for someone who has accumulated a lot of equity in property. You can even borrow money against your property portfolio and use it to invest in income producing assets such as income generating funds while the interest is tax deductable. Worked well when interest rates were low.
People will soon realise the reality that when the value of a house drops 50%... the amount of debt you owe doesnt drop 1 cent. You dont own anything you have debt on... the bank owns it. You are just paying them for the debt that the reserve bank gave them for free.
Drops 50%...dreaming let the market react even by 5% and watch how the entire rbnz and government machinery gets active with least regret approach.
Cheap personal loans for mortgage holders....
The top up mortgage lending is the most egregious result of the RBNZ's QE and low interest rate policies.
People are taking out the cheap debt and using it to leverage up into other assets.
Agree on quality of interest as a media source - Stuff news gets a govt subsidy which is essentially a bribe to silence them, TV1 is owned by the govt, TV3 are all lefties so support the govt rhetoric and most of the public lap up the one-sided news given to them.
Thanks for this article, Greg. This helps me understand a bit more on why we are having inflation this time.
Mortgage top ups encourage people to use their home like an ATM machine, drawing out big chunks of dosh to spend on all sorts of things.
If we knew how much money was being pumped into the economy each month in this way, and the size of the resulting debt that was accumulating, there could be a debate on whether the rules that govern mortgage lending, such as loan-to-value ratio limits and even interest rates, should be different for mortgages used to buy a house than they are for those used to free up cash.
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