Switching banks takes a huge chunk of mortgage money

Nearly a quarter of all mortgages loaned in December went to borrowers switching banks – an increase of 94.8% over a year.

The RBNZ’s latest Lending by Purpose data shows $2.062 billion of the total $8.113 billion lent on new mortgages at the end of last year went to clients who changed providers.

The switching of bank mortgages equated to 25.2% of the total mortgage money lent in December. It is also the highest in a month since the RBNZ started collecting this data in 2017.

The more than $8 billion total lent was up a substantial 53% on December 2023 and up from $7.412 billion, or 18.9%, from November last year. 

It is one of the highest lending months since March 2021 when a whopping $10.467 billion was lent on mortgages during the pandemic housing boom.

During December mortgage money for property purchases also high a three year high at $4.913 billion.

First home buyers took out $1.611 in new mortgages, investors $1.690 billion and other owner-occupiers $4.731 billion.

While first home buyers are still a major influence in the housing market, their overall share of the mortgage market dropped to 19.9% last month, down from 20.2% in November and a record high of 25.2% in December 2023. This is the first time it has been under 20% since July 2022.

On the other hand, the share of new mortgages to investors has dropped to 20.8% from 21.6% in November but is still a big increase on the 16.8% they had in December 2023.

New mortgages to other owner occupiers rose to 58.3%, up from 56.9% per cent in November. These figures have been mostly consistent. A year ago, other owner-occupiers share of new mortgages was at 56.7%.

The number of new mortgages to all borrowers have risen a substantial 34.2% over the December year to 20,147 from 15,013 at the end of 2023.

Average new loan values have increased 14% in the year since December 2023 to sit at $402,677.

‘Bankflation’ needs to be brought under control - union

Meanwhile in a submission to Parliament’s Finance and Expenditure and Primary Production committees' bank inquiry bank workers' union First Union wants banks' net interest margins to be regulated and a levy on bank profits to combat "bankflation”.

The union says NZ banks’ net interest margins (the difference between lending and borrowing rates) are now at their highest level in 17 years (2.38 percent). This means mortgagors, businesses and consumers endure relatively high borrowing rates, while depositors receive relatively low deposit rates.

It calls this dynamic “bankflation”.

This has followed a relatively long period of lower interest rates, in which lending activity has increased significantly. New Zealand banks’ balance sheets have more than quadrupled over this same 17-year period, the union says. 

“Despite the Global Financial Crisis and the Covid-19 pandemic, bank profits remain resilient in the long-term: doubling since 2013, tripling since 2006 and quadrupling since 2000. In the decade to 2022 the Big Four banks’ profits increased by 80 percent, generating almost $47 billion in in cumulative net profit after tax over this period.

“Despite the Global Financial Crisis and the Covid-19 pandemic, bank profits remain resilient in the long-term: doubling since 2013, tripling since 2006 and quadrupling since 2000. In the decade to 2022 the Big Four banks’ profits increased by 80 percent, generating almost $47 billion in in cumulative net profit after tax over this period. Of this, they delivered a cumulative $36 billion in dividends to their shareholders (a 77% distribution rate), leaving little capital left over for reinvestment to improve the quality or reduce the price of banking services for New Zealanders.“

While ultimately Treasury recommended against a windfall tax, on the basis that the “supernormal” profits generated by the large banks seemed to be persistent across recent decades and not tied to a specific event or set of circumstances (such as the pandemic), the union says it can can see a clear acceleration of those profits in the present environment.

“The monetary tightening process initiated in October 2021 to quell inflationary pressures (during which banks have disproportionately hiked their margins) constitutes a clearly identifiable set of events for the purposes of a windfall tax discussion.”

The union also supports recommendations calling for the structural separation of big four banks, however it says common shareholdings may undermine a more competitive market.

“The entry of other major international players into the New Zealand banking industry may therefore be preferable.”