Mortgage demand picked to decline

Thursday 16 July 2020

Banks are expecting a fall in demand for mortgage lending in the second half of 2020, according to a new Reserve Bank Credit Conditions Survey.

By Miriam Bell

The survey, which was conducted at the end of June, aims to help understand how credit conditions have changed post-lockdown and how they are likely to evolve going forward.

Twelve banks, including the five largest, provided separate responses for household, small and medium-sized enterprises (SMEs), corporate, commercial property and agricultural lending.

While some sectors showed a continuation of lending trends that pre-date the Covid-19 crisis, a change was noticeable in the residential mortgage lending sector.

Prior to lockdown mortgage lending was firmly on the rise but, in the survey report, banks reported a decline in demand for mortgage lending over the first half of 2020.

The banks attributed a fall in the volume of enquiries to the nationwide lockdown which started on March 26.

Several banks noted enquiries from both owner-occupiers and investors rebounded in May, but they are anticipating a fall in demand for mortgage lending in the second half of 2020, the report said.

“Banks noted that lower interest rates may support demand. However, banks predict the economic impacts of COVID-19 will largely offset this.

“One bank noted they expect more distressed house sales as government financial assistance packages begin to roll off and the level of unemployment increases.”

When it came to mortgage lending standards, banks reported that there had been no material changes to their serviceability standards.

But they said that Covid-19 has resulted in greater income uncertainty given the likelihood of higher unemployment and fewer hours worked, the report said.

That means banks expect to perform more thorough due diligence to assess income and job security.

For example, higher haircuts will be applied to variable or “at risk” income (like bonus, commission, boarder/flatmate rent, Airbnb income) included in servicing assessments.

The banks expect this will impact on the credit available to applicants.

Most banks didn’t report a change in appetite for high-LVR lending despite the temporary removal of restrictions, the report added.

“One bank did note that high-LVR applicants would likely require very strong servicing positions and that property type and location would need to be less susceptible to price declines.”

The Reserve Bank’s report comes on the back of its most recent residential mortgage lending data which showed a strong rebound in new mortgage borrowing in May.

At the same time, mortgage advisers have been reporting that business is busy with lots of activity from both investors and home buyers.

Meanwhile, in the Reserve Bank report, banks noted a decrease in demand for commercial property lending in the first half of 2020 and forecast a significant slowdown over the latter half, particularly for development lending.

“Banks reported that uncertainty surrounding the depth and duration of the downturn has affected market confidence and slowed pre-sales in residential development projects.”

Further, the current economic environment means that banks are generally more cautious and have reduced their appetite for both new development and investment lending, the report said.

Read more:

Mortgage borrowing rebounds in May 

Advisers buoyed by strong property market 

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