Surprise spike in mortgage lending

Wednesday 21 December 2016

Evidence that the effect of the latest LVR restrictions might be diminishing comes in new data which reveals a big jump in mortgage lending – including to investors.

Talk around the traps recently has been all about how long the investor-focused LVRs will continue to slow down the housing market.

Economists have tended to agree that the impact of the LVRs won’t be long term, but should linger for a few months more.

Just last week ANZ economists said they expected new residential mortgage lending figures to show a continued cooling.

But, in defiance of expectations, the latest residential mortgage lending data from the Reserve Bank shows that total new lending jumped up to $6.34 billion in November.

This was a significant increase on the $5.36 billion total new lending in October.

There was an increase in lending to all borrower groups – with a big rise in lending to first home buyers ($897 million in November as compared to $769 million in October).

But, after several months of declining lending share, there was also a noticeable increase to investors.

They accounted for $1.73 billion of November’s new lending, as compared to $1.44 billion in October.

This amounted to around a 27.4% share of new lending. While this means investors’ share of lending was down from 38% a few months ago, it was still up on its low point of just under 27% in October.

Again, after several months of decline, the amount of higher than 80% LVR lending to investors rose in November – albeit only slightly.

It came in at $10 million, as compared to $9 million in October. This remains well below the high in June when investors accounted for $50 million in higher than 80% LVR lending.

Higher than 80% LVR lending to first home buyers dropped slightly (to $199 million from $201 million in October), but increased for other owner-occupiers (to $154 million from $127 million in October).

In a similar vein, higher than 70% LVR lending to investors also increased in November. It was up to $209 million from $178 million in October.

The Reserve Bank’s data for lending in the Auckland market vs the non-Auckland market also showed that lending was up again, across the board.

There was a small rise in lending to Auckland investors who were responsible for $1.26 billion new lending in November, as compared to $1.09 billion in October.

But there was a big increase in lending to Auckland non-investors in November. They accounted for $2.00 billion of new lending, as compared to $1.67 billion in October.

Further, non-Auckland lending was up significantly. It went up to $3.07 billion from $2.59 billion in October.

The Reserve Bank doesn’t break down the non-Auckland data into investor vs non-investor groups, so the data could indicate that investors have been looking out of Auckland.

Fitting into the trend, the Reserve Bank’s lending by payment type data showed increases in both interest-only loans and principal-and-interest loans as compared to October.

Interest-only loans accounted for $2.23 billion of total new lending in November, while principal-and-interest loans accounted for $4.11 billion.

There was a rise in interest-only loans to both investors and owner-occupiers (including first home buyers), but investors share of interest-only higher than 80% LVR loans remained the same ($0.4 million).

This data suggests that investors may be returning to the market earlier than anticipated.

However, according to some economists there are now other factors at work – notably rising interest rates and tighter funding conditions – which could continue to moderate the market.

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