New record set as first-home buyers continue to borrow up a storm

Property

New residential mortgage lending up 16% in year to January thanks to first-home buyers and investors; No major change to portion of lending to those with small deposits

28th Feb 20, 8:00am by Jenée Tibshraeny

First-home buyers (FHB) are continuing to stretch themselves to get into the property market.

A record portion - 19% - of new residential mortgage lending went to FHBs in January, according to new Reserve Bank (RBNZ) figures.

FHBs have been taking an increasingly large share of the pie since the RBNZ’s data series started in 2014, when around 10% of new mortgage lending went to FHBs.

At $889 million, the amount borrowed by FHBs was up 27% from January 2019.

This was a much bigger jump compared to the increase in total mortgage lending across all borrower types, which was up 16% to $4.71 billion.

While lower than the months preceding, this $4.71 billion was the highest for January (since at least 2014).

FHBs continued to stretch themselves, with 40% of new mortgage lending to FHBs going to those with deposits of less than 20%. Pre-2019, this figure was in the late 20%s and 30%s.

Of all the lending to borrowers with deposits of less than 20%, a record-high 71% went to FHBs.

Investors borrow 31% more than a year ago

As for investors, they accounted for a fifth of new mortgage lending - the highest portion since September 2018.

Investors borrowed a whopping 31% more in January 2020 ($951 million) than they did in January 2019.

Of all lending to investors, 15% went to borrowers with deposits of less than 30%.

This was broadly on par with much of 2019 and 2018 and a huge fall from before October 2016 when the RBNZ tightened loan-to-value ratio (LVR) rules, further restricting bank lending to borrowers with small deposits - particularly investors.

Owner-occupiers steady as she goes

With investors and FHBs borrowing proportionately more, owner-occupiers took a back seat.

They made up 60% of new mortgage lending ($2.81 billion) - the lowest portion since July 2018.

However lending to owner-occupiers was still up 9% compared to January 2019.

Only 5% of lending to owner-occupiers went to those with deposits of less than 20% - a similar portion to that of recent years.

No major shifts in high LVR lending

All eyes will now be on whether the RBNZ will change LVR restrictions when it releases its next biannual Financial Stability Report on May 27.

Across all borrower types, the portion of lending to those with deposits of less than 20% sat at nearly 11% of all borrowing. Given this is where it has been sitting since LVR restrictions were loosened in January 2019, the RBNZ might not have reason to change its settings.

The current rules mean at least 80% of owner-occupier lending must be to those with deposits of at least 20%. Meanwhile at least 95% of investor lending must be to those with deposits of at least 30%.

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62 Comments

by Due Diligence | 28th Feb 20, 8:24am 1582831460

Congrats to all the first home buyers

by Pragmatist | 28th Feb 20, 8:42am 1582832546

"FHBs continued to stretch themselves, with 40% of new mortgage lending to FHBs going to those with deposits of less than 20%. Pre-2019, this figure was in the late 20%s and 30%s."

This is NOT a good thing.

by printer8 | 28th Feb 20, 8:50am 1582833046

A significant increase in the number of investors suggest that this IS a good thing.

by Pragmatist | 28th Feb 20, 9:27am 1582835273

Indeed, happy to watch them burn if it crashes. And i'll be making sure my local MPs know that any bailout for "investors" will be a surefire way of not getting my vote.

by nymad | 28th Feb 20, 9:31am 1582835462

It's not your vote that they want..

by tothepoint - d… | 28th Feb 20, 12:42pm 1582846956

For sure, FHB's aren't listening to the DGM - who couldn't forecast the next sunrise.

TTP

by Son of a Point | 28th Feb 20, 1:37pm 1582850250

Dad, remember the other day when you said it would be sunny tomorrow, then it rained?
Remember when you said first time buyers borrowing very large amounts of money to buy a house in one of the most overpriced markets in the world were doing the smartest thing eva, and then there was Corona Virus ... and they lost their jobs, couldn't get new jobs because the economy was in dire straits, and there were all these mega-mortgages sitting around with no-one to pay them?

by Yvil | 28th Feb 20, 1:50pm 1582851050

Oh look TTP, you've got a second groupie (after Misses The Point). Does it feel good to have followers like them?

by CourtJester | 28th Feb 20, 2:48pm 1582854501

Says his most eager follower...

by blue meanie | 1st Mar 20, 9:58pm 1583053137

They are the same person. He sometimes mixes his different personalities up. He was also Echo Bird amongst others.

by PonziKiwi | 28th Feb 20, 3:23pm 1582856607

It's great as property is linked to credit creation making us all richer. Negative rates are coming and bigger government surpluses. Governments can't spend into the economy as it plays havoc with the banking systems Capital ratios! Even the imf said during a recession spend your surplus on unemployment benifits and tertiary education.

And leave the banks to re inflate the bubble.

by Dogboy | 28th Feb 20, 10:13am 1582838037

Dont worry , the global recession cant touch NZ!

by CourtJester | 28th Feb 20, 12:35pm 1582846552

This is starting to sounds like a cult initiation mantra...

by b21 | 28th Feb 20, 10:57pm 1582883839

Yes, good luck and congratulation to the awarded banks.

by xingmowang | 28th Feb 20, 8:49am 1582832982

millennials are paying for baby boomers retirement.

by Ocelot | 28th Feb 20, 9:02am 1582833757

That was always the plan. Housing will only be allowed to return to affordability after the vast majority of the boomers have passed.

by Fritz | 28th Feb 20, 9:35am 1582835712

Respect for the aged

by CourtJester | 28th Feb 20, 2:48pm 1582854528

...this virus has not.

by CourtJester | 28th Feb 20, 1:15pm 1582848950

Coronavirus has a much higher mortality rate in boomers than in millennials... just sayin'...

by printer8 | 28th Feb 20, 9:42am 1582836127

Seriously xingmowang and Ocelot: What illogical and ridiculous comments.
Please explain
- how the current prices of houses are paying the retirement of baby boomers?
- whose plan was it and why are houses going to return to affordable prices after baby boomers have passed?

As anyone with half a brain knows, house price inflation since 2012 is due to significant falls in interest rates and housing supply.
Just because a home may be worth more, this does not generate any income or additional money. And as for the low interest rates, those baby boomers with term deposits to provide additional income for retirement, have suffered with minimal returns while those with mortgages - typically the younger home owners - have been significantly advantaged.
Get over your ridiculous comments looking for a scapegoat by baby boomer bashing - your postings are nothing but that.

by Laminar | 28th Feb 20, 11:07am 1582841231

I don't agree with them, but they will be talking about downsizing to free up capital.

by Rob | 28th Feb 20, 1:55pm 1582851344

It makes people feel rich when their house price goes up. So it increases the net worth of the average NZer. But this isn't a good thing to 'create wealth' out of thin air like this, when both the house price growth and prices are so out of whack with wages.

by Laminar | 28th Feb 20, 3:47pm 1582858057

That's not really the case as there is no historical whack to be out of. NZ in its current form basically didn't exist until 1986 and even then, things have changed a lot. Nations vary from one another, cultural priorities, spending habits etc, make a comparison to the past, or to other nations, nearly pointless.
At its core, it is not known what the long-run average interest rate should be, and thus there is no way to know what the fair multiplier between income and house prices should be.
Currently, the strongest predictive models say that the best estimate of fair value is the value of the assets today.

by Yvil | 28th Feb 20, 11:06am 1582841201

What's between a Boomer and a Millenial?

by Clementé | 28th Feb 20, 11:10am 1582841458

about an extra 900,000 for a house?

by Nzdan | 28th Feb 20, 11:56am 1582844195

And an extra 40 hours per week worked per household.

by Yvil | 28th Feb 20, 12:33pm 1582846429

Haha, well put. I don't like these labels (or any labels cause they generally lead to silly, destructive us vs them attitudes) but I found out I'm too young to be a Boomer, I must be too old to be a Millenial, so what am I ? lol

by BadRobot | 28th Feb 20, 1:53pm 1582851217

Gen-X - welcome to the club

by Yvil | 29th Feb 20, 6:26pm 1582953973

Ok thanks, sounds good. What good or nasty characteristics am I supposed to have then?

by CourtJester | 28th Feb 20, 1:26pm 1582849571

You mean an extra 40 hours *paid* work...

by youngdumbandbroke | 28th Feb 20, 2:19pm 1582852790

So boomers are dumb enough to work 40 free hours?

by Pragmatist | 28th Feb 20, 2:48pm 1582854521

Yeah, they called it being a "stay at home parent".. one parent worked, one raised the demonspawn. Is that better than the 2nd parent going to work and paying for childcare?? Better for the family, not better for the "economy" apparently.. except in many ways we had a stronger economy back then, hmmmmm..

by Cowpat | 28th Feb 20, 9:50am 1582836635

Jenee, any correlation between the Reserve Bank reducing the OCR by 75 percent over the past year, or a two fixed mortgage down 110 bps over the past two years and new residential lending .

by Jenée Tibshraeny | 28th Feb 20, 10:21am 1582838509

I would certainly say so!

by frazz | 28th Feb 20, 10:43am 1582839803

You boomers should be proud of your offspring - following your sage advice even in the face of a pandemic, well done.

by J.C. | 28th Feb 20, 12:00pm 1582844454

This lending would likely have been 'booked' before the awareness of coronavirus. One would think that taking on large mortgage debt at the peak of an almighty bubble and probably the most fragile economic outlook since the GFC is really chancing your arm.

by Henry_Tull | 28th Feb 20, 11:13am 1582841590

Credit has become more available, and people are taking it. - more supply, than demand.

The way several people have told how they rationalise it
"look what the bank will give me, they are backing me". "I don't want to miss out".

by J.C. | 28th Feb 20, 11:18am 1582841884

I've talked to foot soldiers in the NZ banking industry before about their understanding of risk management on their part. They seemed to be woefully ignorant and could only recite a superficial overview of how loans are assessed.

by Houseworks | 28th Feb 20, 1:28pm 1582849711

That's because you're a tire kicker so why bother explaining.

by J.C. | 28th Feb 20, 2:54pm 1582854869

Foot soldiers are not trained to explain how their employers manage risk in the greater scheme of things. They're trained to close sales and cross sell. The subprime mortgage crisis was partly uncovered by qualitatively understanding the attitudes and behavior of the foot soldiers. If you don't believe me, go read Michael Lewis' 'The Big Short.'

by Chairman Moa | 28th Feb 20, 11:19am 1582841974

The banks should do a free offer of 3 packs of face masks and 6 bottles of premium hand sanitiser with every first home mortgage. They need them to be alive to payback the loans

by streetwise | 28th Feb 20, 11:21am 1582842117

The question to ask is whether the Government will put a freeze on mortgage repayments if the economy turns belly up and FHBs start losing their jobs and income.
The big overseas banks have done exceedingly well out of NZ so I think they should be prepared to take the bad with the good.

by Nzdan | 28th Feb 20, 11:59am 1582844376

New Zealand's very own sub-prime mortgage crisis in the making.

Next step:
12 August 2019

The Reserve Bank has today published a summary of submissions on its consultation proposing a new mortgage bond standard aimed at supporting confidence and liquidity in New Zealand’s financial markets.

https://www.rbnz.govt.nz/news/2019/08/submissions-received-on-new-mortg…

by THE MAN 2 | 28th Feb 20, 1:20pm 1582849202

Why wouldn’t you buy if your interest component of your loan is less than your rent?
The principle part is just compulsory saving!
Good on those that have bought if the sums are right and you have bought well!,

by Chairman Moa | 28th Feb 20, 1:31pm 1582849873

OK Boomer..

by Nzdan | 28th Feb 20, 1:41pm 1582850469

You can still buy well in the regions. In my case buying 2.5 years ago, our Interest Component + Principal Component + Rates + Insurance is considerably less (approx 20%) than market rent in the same location/house profile. It just comes with a hefty commute.

by Rob | 28th Feb 20, 1:58pm 1582851500

What about maintenance and vacancy costs? Most people don't want a hefty commute. False economy with the wasted time and travel costs.

by Nzdan | 28th Feb 20, 2:17pm 1582852637

Maintenance? As an owner occupier we're not in the business of punching holes in walls and smashing up toilets. "Maintenance" seems to be often thrown out there as a big downside to home ownership....almost like all home owners do on their weekends is furiously rehang doors, replace wallboards and refix the roofing iron. Vacancy costs....huh?

I understand the potential for a false economy with travel time/costs. The numbers aren't going to stack up for everyone.

by Pragmatist | 28th Feb 20, 2:55pm 1582854930

Even a simple corrugate iron roof is about $15k to have replaced, and they don't last forever. A few rotten weatherboards here, a new hot water cylinder there, and pretty soon you have $25k of spending over a few years. And price up kitchen renovations with anything other than cheap particle board junk cabinetry.. its eyewatering, even if you aren't going for the $700 each Hans-Grohe mixers and other high end stuff. (automatic cupboard and drawer opening.. seriously, how f'n lazy are you?)

by Nzdan | 28th Feb 20, 6:55pm 1582869301

Yes however a lot of that shit doesn't appear overnight and if it does (hot water cylinder that is) then tough luck. Mortgage top up and get on with it.

I understand it's probably not ideal if you're 95% LVR on a run down dump in Auckland paying upwards of 50% household income on the mortgage.

by Rob | 28th Feb 20, 3:18pm 1582856335

Vacancy costs, is the cost of when it is empty, and you are not getting rent.Generally you put aside some fo the rent to cover this, when it isn't being rented. Not sure it people who own rentals do this in NZ, but it is done overseas.
Maintenance costs are money you put aside from the rent you get, to cover replacement costs of things such as roof, old windows, weatherboards, repainting, plumbing, kitchen, or just ongoing repairs and replacement. A lot are big ticket items. Also to upgrade the house when changes are needed, such as upgrading insulation, installing heatpumps, so the house is warm etc. It isn't easy being a landlord these days, and teh rules will likely only get worse, as standards are lifted.

by Nzdan | 28th Feb 20, 6:59pm 1582869546

Yes but I am a home owner so I don't take rent. My comment was comparing complete mortgage outgoings to market rent.

by BadRobot | 28th Feb 20, 1:55pm 1582851326

You may not have the deposit.......

by Rob | 28th Feb 20, 2:00pm 1582851621

There are a lot of other costs apart from interest. People seem to be buying at the moment for investment, willing to take a haircut on the ongoing costs, to benefit from the capital gain. So effectively it is costing them to house other people, until such a time they sell the house, but whether they actually sell for a profit is a gamble.

by Pragmatist | 28th Feb 20, 2:05pm 1582851943

Because your outgoings become interest + principal (not principle) + rates + maintenance + insurance. That could be double what they pay in rent, and if a recession comes along and on of you gets laid off where does that money come from?

by cmat | 28th Feb 20, 2:08pm 1582852086

LOL, because the equation is the other way around.

If I rent a house at prevailing no-yields of ~2.0% in Auckland that is far less than mortgage interest on a similar property (~3.5%).

And that's before maintenance, insurance and rates... oh and without the risk of leveraged virus losses.

by cmat | 28th Feb 20, 2:05pm 1582851912

Give us an update after FHBs have checked their KiwiRaid fund and their bank has informed them of their new debt capacity.

by Foreign buyer | 28th Feb 20, 4:59pm 1582862352

How can TTP sleep at night?

by Pragmatist | 28th Feb 20, 5:08pm 1582862903

Hang on.. first we need to establish that TTP does in fact need sleep...

by BadRobot | 28th Feb 20, 5:43pm 1582864996

Probably soundly so long as he / she takes their meds

by Keen Observer | 1st Mar 20, 12:21am 1582975290

Phuueww.. just get in time, the door will be shut shortly... Wait, how's this calculation works? - if the RE forever increases, no major correction, just keep on leveling etc. - Then, what will happen to the next young generations. How about if they are all moving out to more safer greener pasture? - What is going to happen to those Services/Operational staff, that keeps on renting, how is it possible for them to afford a dwelling of their own? - when theoretically their loan burden should get even higher & longer to service.My advise to NZ young healthcare professionals? - leave NZ, let their healthcare systems to be staffed by imported workers.

by Keen Observer | 1st Mar 20, 10:07pm 1583053629

Life is more complex than just following one side of the story, following left/right directions? guaranteed that you will be walking in circle, following DGM? following RE agent? - The ability to timing the walk, left, right foot is the key, the yin, will not complete without the yang.. and when you spin it fast? it's showing grey rather than black/white. Ability to restraint is also a good human trait - good luck everyone, just remember Wealth doesn't mean a toss to worry about compare to your most precious one, your Health. Trust me, hardly any of those RE agent/pro-marketer, boasted as such.. during the consultation with their own GP, which surely not all of them owned a house by the way.