First home buyers remain active in terms of mortgage borrowing - but is that now a half-open eye that can be seen coming from the direction of the long-sleeping investors?
Latest monthly mortgage data, from the Reserve Bank show that total monthly new mortgage commitments were $5.778 billion in October, up from $5.194 billion in September 2023 and up from $5.582 billion in October 2022.
It's still a long way of the sorts of figures that were being seen a few years ago. In October 2021, for example, $7.717 billion was advanced.
According to the RBNZ's summary of the latest figures, on a seasonally-adjusted basis (IE taking out seasonal market activity patterns) the October 2023 mortgage advances were up 2.2% compared with the figures for September 2023.
First home buyers borrowed $1.369 billion in October, up from $1.253 billion in September 2023 and up from $1.219 billion in October 2022. In terms of the overall share of borrowed monies, the October figures for the FHBs made up 23.7% of the total, down from 24.1% in September. The record share of the monthly borrowings for the FHBs was in July of this year with 24.8%.
The investors have been sitting on the sidelines. If you go back to the 2014-16 period the investor grouping were often out-borrowing the FHBs in terms of market share on a ratio of about three to one.
But not recently.
In fact the last time the investors borrowed more than FHBs in a single month was in March 2022,
In October the investor grouping borrowed $1.021 billion. That's only the second time this year (the previous time was in March 2023) that the investors have borrowed more than a billion dollars and we need to go back to June 2022 for the previous month in which the billion mark was exceeded.
In terms of share of the overall advanced monies, the investor grouping represented 17.7% in October. It is the equal highest share this grouping has recorded this year - and was up from 17.2% in September. In fact, the investors' share of the total has been gradually creeping up ever so slightly every month since June of this year. The all-time low for the investor grouping was in January with 15.4%.
The 17.7% share of the market in October of this year compared with just 16.2% in October 2022 and 16.9% in October 2021.
Back in mid-2016 the investors were enjoying around a 35% share of the the mortgage advances, but this figure was sharply cut back when the RBNZ introduced more stringent loan to value ratio (LVR) rules for this grouping in 2016.
And its notable that the last time there was a big surge in investor interest was when the RBNZ temporarily removed LVRs in 2020, in what was an ill-fated decision that presaged the start of the massive pandemic housing market boom. In October 2020 investors had a 24.2% share of the mortgage monies advanced that month.
The big drop off in investor interest in the market has coincided with the previous government's move to remove interest deductibility for investors.
The incoming Government is now pledging to have 60% deductibility restored for investors in the 2023-24 year.
It is going to be interesting to watch over the next few months to see if we do now see some resurgence in investor interest in the housing market.
18 Comments
I can hear the faint sound of the war drum beating in the distance. And the distinctive noise of the collective knuckles dragging along the floor. Armed with the banks' money to leverage and destroy the young families trying to buy a home. Goody gumdrops.... I can't wait.
For those that cant do maths, there hasnt been a change to the amount of interest able to be deducted. Deducting 100% of a 2.5% mortgage is exactly the same as deducting 50% of a 5% mortgage. And deducting 50% of a 7% mortgage is actually more than deducting 100% of 2.5%. It was only going to be next year when it dropped to 25% deductibility that the reduction in the amount claimed for tax purposes would drop significantly.
It is the fact that a mortgage is costing a landlord 7% now, not the tax deductibility of it, that is the real problem.
K.W. is right. It's more or less the same deduction so let's not get hung up on it. Interest rates remaining the same and inbound DTI will sort the leveraged from the non leveraged.
The real rort would be removing ringfencing to once again allow property debt to rinse unrelated income tax. Nats cleary called out they would not role this back during the campaign. Not sure what the three way deal on this.
Or... the average family won't be the major clientele for property in the future. House prices throughout Eastern Europe, Caribbean, southern Africa have been reasonably robust in the last 2 decades, even with the average wage being a pittance. I am expecting the same for nz. A soft feudalism. The haves and have not. The number of households that rent could go as high as 80% if recent history in other countries is indicative
NZ is not in that basket so much land per person so many people own a property the likelihood will be more of a crash in price’s still down 20% from highs in many areas I don’t expect rates to fall for a long time so whoever took out mortgages will be paying more for longer, some who are over leveraged will be in huge financial difficulties and many will sell at a loss already 1 in 10 are selling at a loss better to lose 20% to 50% than the lot.
In Auckland the lower quartile property is 800k so still crazy price to average income at 5.7 DTI, when I first got a mortgage 3 x DTI was most you could borrow. Another big problem for young couples is how to save deposit while paying rent and trying to keep up with inflation.
I ran some figures, and convinced investors won't come back in a hurry.
gross rent return mostly sits 4.5%-5% if purchase now if one is lucky, and that means 2% loss in interests alone, on top of that is rates, insurance, dealing with tenants and constant abuse from some group of people.
so even with interest deductibility, it still sucks to buy rentals.
for ones who already got good equity in their rental portfolio, it'll be a different story. they will enjoy good rents and can grow even larger.
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