Mortgage top ups accounted for nearly half of new mortgage approvals in April

Fewer people are taking out mortgages to buy properties while more are topping up existing mortgages, according to the Reserve Bank (RBNZ).

The latest RBNZ data shows that 21,314 residential mortgages were approved by banks in April this year, up a significant 10.5% compared to April last year.

However, while more mortgages were approved, their average value declined by $18,094 (-4.6%) to $374,824 in April this year, from $392,918 in April last year.

That decline in value was mainly due to changes in the types of mortgages being approved.

Of the 21,314 mortgages approved in April, just 7719 (36.2%) were for the purposes of purchasing a property. That was down from 7903 in April last year, a drop of 2.3%.

The decline is hardly surprising given the current softness of the residential property market.

The biggest group of new mortgage approvals by far was people topping up existing mortgages, with 9904 mortgage top ups in April, up a whopping 20.4% compared to April last year.

Although top ups accounted for 46.5% of all the new mortgages approved in April, their average value was just $102,080. That meant top ups had a combined value of $1.011 billion in April, just 12.7% of total mortgage approvals by value.

By contrast, the mortgages approved for purchasing properties in April this year had an average value of $607,462 and a combined value of $4.689 billion, giving a 58.7% share of all mortgage approvals by value.

So while top ups are the most common type of new mortgages by number, mortgages for property purchases were the lion's share of the business by value.

The third group in that set is new mortgages being written as a result of customers switching banks.

According to the Reserve Bank data, 2888 mortgages approved in April were switchers. They had a combined value of $1.875 billion, giving them a 23.5% share of the value of new residential mortgages approved in April.

The fact that nearly a quarter of the new mortgages by value were the result of people changing banks, suggests competition between the banks for mortgage business is fierce.

Overall, the above numbers suggest that at the moment, banks are fighting amongst themselves for their piece of a shrinking property pie, while retaining existing customers and finding ways to lend them more money is likely becoming increasingly important.