New Reserve Bank figures show that despite significant falls in overall mortgage borrowing, first home buyers are very much still around and interested

By David Hargreaves

While many around them are losing the inclination, or perhaps ability, to borrow money for house purchases, the first home buyers are staying strong in the market.

In percentage terms the first home buyers last month took their biggest share of the mortgage money advanced on a monthly basis since the RBNZ started publishing the mortgage figures by borrower type in 2014.

The latest Reserve Bank figures highlighting mortgage figures for October show that in total (all borrower types) just $4.605 billion was advanced for mortgages in the month, down from $5.36 billion in the same month a year ago and $5.853 billion in October 2015.

September's figures were also extremely subdued.

Clearly the election and uncertainty around its outcome has had a significant impact on house market activity this year.

In that regard it is worth reiterating that the election was on September 23, while the outome of it - namely that there would be a Labour-led coalition - was not revealed till October 19. Therefore the pre-election uncertainty would have carried through into October.

But while the overall amount borrowed in October remained pretty much flat on that for September (when $4.567 billion was borrowed), the amount advanced for first home buyers rose month-on-month by $64 million to $722 million.

In percentage terms that $722 million made up 15.7% of the total advanced - which is comfortably the highest percentage of a monthly total taken by the FHBs since the RBNZ started releasing these figures in August 2014.

Prior to particularly the introduction of the 40% deposit limit for housing investors last year, the FHBS regularly picked up only around 9-10% of the total.

Yes, the total figures have dropped by a lot since then, but the amounts borrowed by FHBs have stayed fairly consistent.

The $722 million borrowed by FHBs in October compared with $772 million for this group last October and $672 million in October 2015.

These figures continue to go against the arguments of many in the real estate industry that the RBNZ's loan to value restrictions should be lifted specifically for the FHBs. The figures would certainly suggest that since imposition of the tough deposit rules on housing investors last year the FHBs have had a better 'fighting chance' in the market.

Prior to the election both the National and Labour parties indicated they would like to see the LVRs gone totally.

When introducing them initially in 2013 the RBNZ signalled that they would be temporary. They've now been temporary for just over four years.

RBNZ comments on LVRs awaited

The RBNZ is releasing its latest Financial Stability Report on Wednesday (29th) at which it is promising to say more on the subject of LVRs.

Acting Governor Grant Spencer said earlier this month, after the release of the RBNZ's latest Monetary Policy Statement, that "we are certainly reviewing the [LVR] restrictions and the criteria that we would adopt for their removal".

"We'll be saying more about that at our Financial Stability Review...We'll talk a little bit more about the LVRs and those criteria at that point." 

The key question will be whether the RBNZ does announce some specific intention to begin removing the restrictions (it has said it would not remove them all in one go) or merely - as most bank economists seem to expect - gives a general indication of the conditions and circumstances under which a controlled removal may commence, possibly next year.

In the meantime the latest monthly borrowing figures show that borrowing by investors remains subdued. The amount borrowed by this group in the month was $1.05 billion, just up from $1.048 billion in September, but down on the $1.265 billion borrowed in October lat year and very well down on the $1.717 billion borrowed by this group in October 2015. 

The percentages of the total borrowed on a monthly basis by housing investors have settled at around 22-23% compared with about 35% before the 40% loan limits were announced in July last year.

An interesting move in recent months has come among owner-occupiers. This grouping had remained at reasonably steady, if somewhat lower levels, since the last round of LVR restrictions were announced.

However, in the past couple of months and in and around the election this grouping has fallen away.

In October $2.789 billion was advanced for acquistion of owner-occupied housing, which was down from $2.809 billion in September and some $479 millon - or 14.7% - down on the $3.268 billion borrowed in October 2016.

Taken at face value this would suggest the owner-occupiers are taking a 'wait and see' and 'sit tight' approach at the moment.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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67 Comments

Lvrs have done a great job of slowing the market down across the country.just hope they unwind them nice and slowly as I imagine there are investors out there not able to make a move at the moment but will be able to purchase at 20 to 30 percent lvr.just don't want them reigniting prices.a few slow years will not hurt anyone

Indeed I know a couple of investors keen to buy more properties but are ham strung by the current LVR.

Its a good time for FHB's to buy before the LVR is dialed back and investors jump in and before China relaxes capital outflow controls.

Yeah I know some investors sidelined by lvrs too

It is good that first home buyers are purchasing at a discount price. Please remember that tenants are important to and they need housing as well.

Certainly, I know plenty of FHB's searching at present.

Interest in the housing market at the entry-level appears to be gathering strength across the country??

TTP

Hi Robert,

Agree - it's very important that adequate houses are available for tenants, as well as FHB's.

The basic problem is that in many areas there's an undersupply of dwellings.

TTP

A 'discount price' does not necessarily mean a good deal. If you're referring to a 'discount price' as the dribble of places selling under RV that a first home buyer could afford, then they are definitely not getting a good deal. They're paying $200k more than they would have 3-4 years ago, with a 2-3% increase in take home pay.

Hopefully LVRs will be relaxed for FHBs but retained for investors.

Its now clear the Govt isn't going to reduce immigration levels so local FHBs will continue to compete with money coming in from overseas however a continuation of the higher LVR for investors would help level the playing field.

Perhaps the tolerance for lending at high LVR (above 80%) for owner occupiers can be increased from 10% to 20% or so, given that FHBers comprise 21% of banks’ new lending in this category.
However, LVR limit on investors must either be made permanent, but if not made permanent it should only relaxed if the housing shortfall has been eliminated.

Hi Sentinel,

The risk in relaxing LVRs is that upward pressure on prices will be created. Indeed, it's an area with tricky trade-offs.

TTP

TTP, are you saying that LVR should be retained on FHB mortgages to prevent them paying these stupid prices - to protect them?

Sentinel, your comment makes good sense. We want to shift the balance back towards FHB. LVR were introduced to protect the financial system from systemic risk. It was FHB that were an unfortunate consequence.

TTP, what is your basis that if LVR were removed that prices would take off? Remember foreign buyer ban is being introduced and banks have tightened lending criteria (non LVR related)

It's a well known fact that investors can still buy and can easily get around LVR by borrowing from financial institutions that fall outside the rules.....so why is there lack of interest from the speculator?

I'm not sure there will be a foreign buyer ban. The govt and media have gone really quiet on it after the last round of TPP. I guess we'll soon see in Feb 2018 if it comes into force but right now I'm not holding my breath.

No there will be a foreign buyes ban it's one of Labour's main policies with NZ First. Can't see them going back it especially since it has reached global headlines. Not that it will change things much since the top end Chinese buyers are long gone with China's clamp down on their capital flight.

Ultimately banning foreign buyers from buying property(excluding new homes) is probably just a red herring anyway as it is not difficult to get round the rules.

To counter that, I would suggest that 100% forfeiture should be the penalty if/when found out. Few of those could help out with the housing shortage.

Maybe a financial reward scheme for people who dob them in.

Hi R-P,

A number of the trading banks (including Westpac in its news release this morning) and other forecasters are picking house prices to edge up through 2018........

So there are definite risks in relaxing LVRs prematurely. Any "systemic risk" has NOT entirely disappeared.

A cautious approach is warranted.

TTP

TTP, can you please put up links to today's press releases from trading banks including Westpac and in particular the other forecasters you refer to - thanks

TTP,

You write "So there are definite risks in relaxing LVRs prematurely. Any "systemic risk" has NOT entirely disappeared."
Why would systematic risk entirely disappear?
What is the point of this statement to say that systematic risk has not entirely disappeared? The only thing it can imply is that you believe systematic risk can be zero in a common market.

Name me one market (apart from government bonds) that has zero systematic risk / a zero beta.

Another great example of you throwing around terms with no real understanding of their meaning.

Hi nymad,

If you were an economist (or econometrician) you'd know the difference between "relative" and "absolute".

Of course, the risk of most things is unlikely to disappear in the absolute sense - happy to concede that. But it's still the view of plenty of experts that a significant residual/relative risk remains.

Relaxing LVRs needs to be carefully thought through - which I'm sure the RBNZ is doing. (It should not be a knee-jerk response to the placate the desires of any particular interest group - as much as some people here would prefer that.)

TTP

Another great nothing comment by yourself.

"If you were an economist (or econometrician) you'd know the difference between "relative" and "absolute"."

How does relative and absolute come into it?
Systematic risk is only measured in relative terms.
Unless you have just now theorised some new portfolio management technique?

Hi nymad,

If you'd read my post properly, you'd realise that's the exact point I was making.

The relative risk remains - and is judged as not being insignificant by many senior people in the banking/finance sector (including economists).

TTP
PS Have you discovered the difference between "cyclical" and "structural" yet?

Let us not forget it was you that failed to understand what is cyclical and what is structural.
That is available for anyone to see using the convenient 'search' function.

A failure to grasp concepts seems to be your MO.
The first step to improving your understanding is realising that you are not as smart as you think you are.
Simply arguing for the sake of arguing even when shown to be wrong is a sign of a fool, not one of intellect.

https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect

Wrong nymad,

After I personally explained structural vs cyclical to you, using actual examples, you suddenly "disappeared" - in your obvious embarrassment.

So much for you trying to put across that you "build econometric models".......

TTP

I know you have trouble with many things, including proving your assertions. So, since the burden of proof lays on you...Link the comment thread, please.
Then everyone can have a read for themselves.

Hi nymad,

Everyone here read the exchange between you and I - and it's fresh in our minds.

But how about some evidence on the econometric models you say you build??

I'd like to see them for myself - and find out how you estimate variables etc. That would be really useful.

Looking forward to you posting good evidence about your model-building.

TTP

"I'd like to see them for myself - and find out how you estimate variables etc."

I need to "estimate" variables?
Interesting.
Here I was thinking that observed data was the basis for the overwhelming number of statistical models. And (simply put) what you estimated was the effect of variables on one another; not the variables themselves.
Well, unless we are using feasible variance corrections, instruments, cointegration vectors, etc. I suppose you could argue that those are estimated variables in a sense.
But those weren't what you were meaning, were they, TTP.

So, again, like so many times before, by trying to sound smart a simple linguistic faux-pas has alerted to everyone to the fact that you have no idea what you are talking about.

Hi nymad,

You expose yourself yet again.

Even relative laypersons know that a common approach of econometricians is to obtain estimates of parameters and plug them into a model's equations in order to obtain predictions of future values.

Obtaining estimates, in fact, pretty fundamental.

I really look forward to some evidence about your econometric model building - deterministic and/or stochastic.

Still waiting.......

TTP

TTP,

You specifically wrote "estimating variables".
You did not say "estimating parameters".

Two very different things. Hence my point of you being caught out trying to sound smart by a linguistic error.

Hi Nymad,

Ok - I concede that, in haste, I was a little careless with wording.

Now, please provide some evidence of your econometric model-building activities. Given your lack of understanding about cyclical/structural, I have reason to doubt you.

As the standard advice goes, "put up or shup up".

Still waiting (sigh),

TTP

Happily.
Give me an email address and I'll send my E-quals through.

Alternatively, come and see me at my office.
Whatever suits you.

Hi Nymad,

You must be joking! Why would I post my private contact information here? You might be of ill-repute? (It doesn't take too much commonsense to figure that out.)

If you really want to post your office address here, then that would be your decision. (But, again, it would hardly be wise and, frankly, I would never suggest that anyone do so on a public forum.)

Better, just post the information/analysis here, so it can be scrutinised. If it's genuine/competent analysis and your own work, you've nothing much to worry about.

Still waiting.

TTP

TTP, please @#$%$#@ up!.

Hi R-P,

Same to you - with ribbons.

TTP

TTP, with all due respect but your comments read like the life and times of a Troglodyte who's in desperate need of a cave. At least that's how I've interpreted it.

Lesson of the day, if you don't first gather your facts - you may be accused of posting rubbish.

Hope this helps.

Nymad, systematic risk and systemic risk sound similar yet they relate to two entirely different things. Here is the definition of systemic risk - https://en.wikipedia.org/wiki/Systemic_risk

Here is another comparison of the two - https://www.investopedia.com/ask/answers/09/systemic-systematic-risk.asp.

Fair point, in that case to remove the danger of upward pressure on speculative purchases, as LVRs are decreased for FHBs then they should be increased for investors, that should keep things on an even keel.

New Reserve Bank figures show that despite significant falls in overall mortgage borrowing, first home buyers are very much still around and interested

As a proportion of total lending, FHB lending is at its highest (approx 15% of total lending cf 11.5% two years ago). But to give that some context:

-- Total lending is down 27% from its peak over P2Y. FHB lending is only relatively higher because the denominator is far smaller.

-- FHBers comprise 60% of >80% LVR lending, which is as high as it has been in the P2Y. a historical peak.

Therefore, "being around" is a lazy description.

I fear FHBs who are buying at the moment are going to see their deposits eroded by falling prices.

JRSNZ - you echo my concerns exactly.....

Who cares - if they're genuinely buying for the reason of shelter and nesting, then the mark-to-market value of the house is irrelevant.

If they're buying for investment reasons, they shouldn't be, and "buyer beware". Property investors on the other hand, i'd like to see soaked. Mainly due to the likes of Robert Redford who clothe their greed in faux altruism.

Who cares - if they're genuinely buying for the reason of shelter and nesting, then the mark-to-market value of the house is irrelevant.

If they're buying for investment reasons, they shouldn't be, and "buyer beware". Property investors on the other hand, i'd like to see soaked. Mainly due to the likes of Robert Redford who clothe their greed in faux altruism.

This is wrong headed. Very few people can buy a house for shelter and not be affected by its value falling to zero. Buying a house for shelter is also an investment decision. Most people have been taught that buying a house is better than renting over the long term. They are taught this under current and past conditions using very basic maths and assumptions that they don't have the ability to question.

Here's an extract from Westpac's latest weekly report. Note that Westpac is talking of "subdued gains" in prices and NOT price declines. Given that Westpac still sees the possibility of housing price rises, I think there could be certain risks in relaxing LVRs right now........

"House sales are down by about a third from last year’s peak, and the double-digit house price growth we saw in previous years has given way to a period of quite subdued gains."

My point is that it's taken a concerted effort to get some stability in house prices. Why risk sacrificing it by relaxing LVRs too soon?

TTP

TTP, again you appear to lack the basis on which to base a prediction. Again, can you please put up links to today's press releases from trading banks including Westpac and in particular the other forecasters you refer to.

It's a bit sad to question the credentials of NZ Herald's very own Mary Holm issuing sensible advice to a FHB to wait, it's another to make baseless predictions.

"House sales are down by about a third from last year’s peak, and the double-digit house price growth we saw in previous years has given way to a period of quite subdued gains."

A description of the past and present without any quantifiable indicators. Definitely not a predictive claim about the future. A media release to be funneled to the sheeple.

Hi everyone,

The following commentary today from the BNZ (reported in the mainstream media - Stuff) echos what I've been saying above:

BNZ senior economist Craig Ebert said observers would be closely watching what the Reserve Bank said on the [LVR] lending rules, as the market knew little about the criteria for relaxing the rules.

"[The LVRs] were born of an imperative, and rushed is probably too strong a word, but they were sort of developed and instituted on the hoof...and they haven't been clear what the exit strategy is," Ebert said.

While the idea behind the rules was simple, meaning the criteria for lifting should also be straight forward, it was not clear what had happened to reduce the risks posed by higher house prices since, with average prices far higher now than when the LVRs were introduced.

"If you believe there was a financial stability issue, one, two, three years ago, how is it less vulnerable now?," Ebert said.

TTP

So what do you want to say? That the opinion of a bank economist talking to the media while protecting the interests of his master is the same as a trolling keyboard warrior?

What insight would anyone expect to get from that?

I can answer that. Nothing.

What is more realistic is that banks would welcome the opportunity to get rid of LVRs as it currently threatens their bottom line. Mortgage lending is close to 70% of their business. Business targets, bank jobs, and reputations are at stake here.

*gobble gobble* said the turkey right up until Christmas.

*gobble gobble" said the housing market bull right up until the crash.

Gobbling bulls, whatever next will genetic engineering give us?

I love a bit of turcow for Christmas. mmm...turcow.

Hi J.C.

With all due respect, it's not just the banks that hold such views.

Clearly, it's a very legitimate position.

TTP

Yes, the previous govt also did not seem too pleased with the imposition of LVRs, but that is for different reasons.It doesn't hurt the bottom line of a govt, but it potentially stifles a potential property bubble, which can have devastating effects on consumer spending, which is a key reason that govts promote and tolerate bubbles in the first place.

Reduce the LVR to 30% to lesson the rental crisis.

Wow it's down to about 6 people reading this and a couple of them are probably the same person talking to themselves, this is really turning into a bit of a joke.....keep it up guys I'm loving it.

House prices up 46% in 3 years but apparently we are in a crash, some people may want to look out the window and just check what country they are living in.

House prices up 46% in 3 years but apparently we are in a crash, some people may want to look out the window and just check what country they are living in.

The reality is that the majority of people have no idea what direction house prices are heading. They like to think or pretend that they do.

This has been the most amusing comment stream for some time, methinks.
I gave up reading bank economists and REA's opinions, quite some time ago; too much vested interest.
I agree with J.C.; no one knows what the hell is going on! All I know is that looking at the level of mortgage and private debt existing in NZ, it won't take much to make life financially difficult for some if there is an economic downturn. I am glad I have no debt to speak of.
As to when one should buy a 'home', Zachary had it right the other day - it will be when purchasing makes more sense than renting..

I agree with J.C.; no one knows what the hell is going on!

If everyone had truly believed that they don't know what's going on, house prices would probably be more sober and new car sales would be lower. Most people "think" or "hope" they know what's going on. The magic recipe isn't going to be fed to you by the local Barfoots, Granny Herald, The Hosk, John Key, Westpac, or even Olly Newland.

Internet trolls are simply bottom feeders espousing what they want to hear from influencers like the above. It's good to understand how people behave in relation to house prices.

And I agree with you that private debt is the biggest potential threat to financial stability. However, I cannot prove that and have no issues with being "wrong."

If people knew what is going to happen with house prices in 5 years then the outcome would inevitably change.

Actually zorba, A lot of us do realize what is going on. If you haven't figured it out then you really need to do a bit of research, that's the whole point of this site is to provide information to help people make financial decisions. And yes people will purchase a home when it's affordable and less then the cost of renting, give it another year Auckland is already heading in that downward direction.

So you consume information and think you know "what's going on"? How do you iron out all your biases and emotional weaknesses? How do you assess your ability to align what you consume with your ability to understand the now? Are you a robot?

Then there is the survivorship & optimism biases to filter out, hammer test and then throw into the reforge pile.

I might actually need to head back to /. for fresh air after skimming this lot... it's got that bad. At least /. includes a flavour of comedy and the promise of moving forward.

Dropping LVRs... sure why not create a higher level of debt and open the gateway for further price increases that minor fluctuations make riskier and one good shake will topple the china perched precariously. But since the limits are aimed at NZders and NZ banks it certainly does not level the playing field. Got a property just before and another after LVR introduction, suffice to say it was surely more sensible to have the limit on the minimum equity than accepting mortgage applications with less than 5% deposit on variable quality properties. These days it is harder for FHB but then at the prices being offered even a minimum deposit is harder to reach on an average job. $500k+ is a joke when classified as affordable. The rate the rise has been going has been grand for those in it for a business. Debt to income/savings would be interesting to see implemented but then there would likely be a few more redefining their personal income to suit, (which would be more work for the IRD). It would make more sense though in ensuring a loan could be serviced (at least initially before any unexpected life changes).

My House was independently valued at $460K some 15 years ago and the garden was not even finished. There is no chance in hell that prices will return to these levels or we will all actually be living in hell because we will be in economic meltdown and no one in their right mind would want to see this happen.

Nothing has really changed,you and your partner need a really good job to pay the mortgage, its been this way for years now. You now need to be in it for the long haul so what has changed is the level of commitment to paying off the mortgage and the younger generations simply will not do this as its seen as just too hard. My best guess is that you will still look back in another 15 years and say how cheap house prices were in 2017.

"you and your partner" bit of a laugh as it has no bearing to the comment or myself being several properties down the line. Not quite sure whose comment you were replying to, but it is funny you are trying a "pull up the socks" matron tone for something any basic mathematician can disprove. Plus assuming a couple relationship when replying to a single person. How would you handle hearing about a 6 way purchase (seen a couple of those and none had "partners", I picture your eyes bulging at the thought of all that non coupling in financial purchases).

How much debt is being carried & capability to service it does affect the country and no country wants to boost its GFC risk. The world right now is built on debt but the best thing would not be to have large swathes of the population carry a 600K+ debt when they cannot service it. Pretty obvious as to why. LVRs are not just for FHB but for everyone (for the obvious reasons). Those not using NZ banks will find getting around restrictions is possible. However dropping LVRs back to nothing leaves the whole country to more risk of a larger breakdown. I would hazard a DTI would be a finer edged tool although the max limit is normally about 4-5 times income, however Auckland and other NZ cities have already outstripped if not exploded past to an entry level home at around 8-9 times. So while it would ensure payment more in the long term and hence lower risk the actual likelihood of a FHB buying would be much much lower.

Yet another comments section that has descended into a "TTP v everyone else" back and forth slanging match. This recurring circumstance is seriously degrading the quality of this website

Agreed.. Ideas and solutions please. Opinions.... less is more.