New record for low equity loans

Mortgage lending in May was back to March levels at $8.6 billion after taking a dip in April. Two years ago, that figure was $5.8 billion.

Of the 22,156 new mortgages lent, 2,895 were taken out by first home buyers and 1,213 or 41.9%, were low equity loans – a new record.

RBNZ figures show the average mortgage borrowed was $629,000 by first home buyers taking out a low equity loan. This was down by $56,000, or 8.2%, from the $685,000 peak in May 2022.

It was the highest percentage of low equity borrowing by first home buyers and the biggest number of low equity loans made to first home buyers.

In the latest RBNZ data the number of mortgage borrowers switching banks rose 22.5% in May compared to the same month last year. It was also a monthly increase of 21.1% from April.

About 2,183 borrowers switched lenders last month, considerably up on the 1,198 who did the same in May last year.

The share for change in loan provider increased to 25.4% from 23% in April, while the average value of mortgages taken out by borrowers switching increased by 3.3%.

Switching lenders reached a peak at the end of last year when many borrowers fixed short-term in the expectation the OCR would drop. In December about $2.1 billion in mortgage debt changed hands. Nearly a quarter of all new mortgages were for switches, representing a 94.8% increase year-on-year.

While some banks could be losing borrowers, experts say the overall mortgage market is seeing increased activity as a result of the switching trend.

The Commerce Commission has suggested banks should reduce the costs associated with switching to encourage more competition.

For the three main borrower types the RBNZ collates information on, annual growth in mortgage lending to first home buyers rose 11% in May, for investors it increased 40.3% and other owner occupiers it went up 23.9%.

On the other hand, the share of new mortgages to first home buyersdropped 19.1%, down from 20.4% from April and an annual decline of 21.4% from May last year. They took out $1.6 billion in May. 

For investors the share of new mortgages rose 21.3%, up from 20% in April and an annual increase from an 18.9% share in May last year. Investors took out $1.8 billion in mortgages in May.

The smallest drop in the share of new mortgages was to other owner-occupiers, declining to 58.2%, down from 58.6% in April and down from 58.3% as the same time last year. In June they took out mortgages worth $4.9 billion.

Across all borrowers the average mortgage taken out dropped to $387,396, down 1.4% from $392,918 in April.

The number of new mortgages for property purchases increased by 14.8% and that of top-ups increased by 26.3% when compared to May last year.