Latest RBNZ figures suggest new lending restrictions could have a significant impact

By David Hargreaves

Perhaps as much as half a billion dollars' worth of mortgage loans made last month might have been affected - if the Reserve Bank's proposed new Auckland lending restrictions had been in place, some crunching of the latest RBNZ figures indicates.

As of October 1 Auckland property investors won't be able to borrow more than 70% of the value of the house they are buying.

But up till now they have been borrowing up large.

The RBNZ's latest national breakdown of mortgage lending by borrower type for April showed that of the $5.66 billion loaned on houses, some $1.84 billion (32.5%) was advanced to property investors.

The proportions of loans taken out by investors have been around the 29%-33% range nationally since the RBNZ began publishing the figures last August. But the RBNZ believes that investor borrowing is actually running at more than 40% in Auckland.

More significantly, in looking at the latest RBNZ figures, as much as $947 million in April - more than 51% of the total - was for loans in excess of 70% of the value of the property - that's the category caught by the new rules.

These, of course, are national figures, so a considerable number of those loans would not have been affected by the new RBNZ rules - but equally, hundreds of millions of dollars worth would have been.

Real Estate Institute figures for April showed 7234 houses sold nationally. Of these, 2759 - some 38% of the total - changed hands in Auckland.

Just applying that 38% ratio against the national total of $947 million worth of 70%-plus LVR advances to investors in April would give a figure of $360 million.

But, in dollar terms, those Auckland houses are worth a lot more, with a median price of $720,000 versus $455,000 nationally (which of course also includes Auckland). If you multiplied the number of houses sold around the country by the median price in April, you would get a grand total of $3.29 billion, while doing the same thing just for the Auckland houses would give $1.99 billion. On that basis, in monetary terms, Auckland would make up around 60% of the national total.

If you took that kind of ratio and applied it (okay this is a bit basic, but illustrative) against the $5.66 billion of new mortgages taken out in April, this would give a total about $3.4 billion in Auckland.

Additionally, by applying that 60% ratio against the total of loans to investors ($1.84 billion in April),  this would give a figure of about $1.1 billion for investors in Auckland.

We know that, nationally, investors borrowing more than 70% of the value of their property accounted for $947 million worth of loans. Apply the 60% ratio against that and it would give a figure of in excess of $600 million for Auckland.

Now, that's only indicative, based on a bit of arithmetic, but even if the actual ratios turned out a little different to those calculated here, it's easy enough to see that likely in excess of half a billion dollars worth of lending last month could have been affected by the new RBNZ rules if they had been in effect.

So, the impact of the measures once they take effect in October could be considerable.

ANZ economists believe that these measures along with new ones from the Government may prove to be the "turning point" for the Auckland house market.

One notable thing about the investor figures is that very few investors borrow more than 80% of the value of the property - but a lot borrow between 70% and 80%. In April just $47 million, or 2.5% of investors' total was advanced on over 80% LVR loans to investors. But $900 million - nearly 49% - was advanced to investors through 70-80% LVR loans.

The key question that will likely be answered once October rolls around then is how many of those people currently borrowing in the 70-80% range are going to be able to scrape together more cash to fit in under the new 70% limit. Or whether they simply don't invest.