By David Hargreaves
The level of household debt taken on by Kiwis rose at its fastest pace last month since November 2007.
The RBNZ's monthly sector credit figures for July show that total household claims (mostly mortgages, but also including consumer finance) rose a seasonally-adjusted 0.9% to $238.432 billion (from upwardly-revised $236.791 billion in June).
This is the fastest monthly rise since the 1% gain recorded in the month of November 2007 when the previous housing boom was just starting to tail off.
In terms of just mortgages, the total in July rose to $223.052 billion (from $221.42 billion in June), and is up 9% in the past 12 months.
That's the biggest rate of annual growth since May 2008.
Nearly $18.5 billion was added to the country's mortgage bill over the past 12 months.
The RBNZ watches these figures closely, so will be concerned at the continuing increase in the rate of mortgage borrowing.
The new LVR restrictions to be placed on housing investors were announced by the RBNZ on July 19. Whether there has been therefore something of a surge in the latter part of the month to 'get in' before the introduction of the rules will become more apparent over the next few months.
Clearly the RBNZ will be hoping the new LVR rules will see an easing in the rate of credit growth.
New figures in the RBNZ's Key Household Financial Statistics series are due to be released next week.
The latest available figures for the March quarter showed that household debt had now risen to a record high 163% of disposable income.
It's almost certain the figure will be now higher than that, given the way borrowing has surged in recent months.
At the moment the costs of servicing the debt are comparatively low because of the low interest rates, but whenever interest rates do eventually start to rise, this would hit repayment levels quite quickly and could generate stress for heavily borrowed households.
ASB economist Kim Mundy said housing credit had "yet another strong month", by growing over $1.6billion in July.
"However, it is slightly down from May’s stellar $2.1 billion increase and June’s strong $1.9 billion lift."
Mundy noted that the 9% annual growth rate in the mortgage total was only around half of that seen at the peak of the previous cycle.
"We are expecting housing credit growth to slow from here on out, however, as the new investor LVR restrictions take effect.
"Current RBNZ mortgage approvals data for August are hinting of this, as they are showing a slowing in activity. Further, for the first time in 8 months, investors did not gain a higher share of all new lending. Nationwide, lending eased back very slightly to 37% (was 38%) and fell 2% pts in Auckland, to 46% of all new loans.
"We would expect to see the share of new lending to investors to continue to ease over the coming months, as the new LVR restrictions limit the amount investors can borrow."
30 Comments
People Borrowing more and more is the sign of confidence that people have in economy - would be the response from our PM.
Just like house pricing going up is the sign of prosperity and more people coming but our dear PM does not realise that people from Asian country are coming as this is the easiest, fastest and cheapest way to get Residency in any developed country.
ASB economist Kim Mundy says lending slightly down in July from May. When is a 25 percent fall in lending 'slight'. Slight of a bank economist tongue possibly. When we talk of annual growth of 'only' 9 percent ,this is off a substantially higher base. In 2007 we peaked at selling 11000 homes to one another , in July 2016 we are 40 percent lower. C16 data shows weekly credit lending/( approvals / amounts) has gone off a cliff . ( Auckland has peaked). Interestingly the RBNZ wants to discontinue this series on basis not all lenders are covered, yet in its series description , states it collects 99 percent of all lending data. Will the RBNZ / banks forewarn anyone .
Don't forget to seasonally adjust cowpat. May is always higher than July. Last year May was $1.54b while July was $1.15b... difference being... wait for it.... a 25% drop.
Actually, per RBNZ figures, exact reduction from May 2016 to July 2016 was $454m in net growth, or 22%. So actually a smaller slowdown that last year.
Well FHB's are getting so old now once they pay off the student loan and have a couple of kids they no longer have a enough years to pay off a $1 million mortgage (and look after their aging parents).
"Borrowers as young as 40 are struggling to get approved for mortgages because of their age, experts have warned.
Lenders are wary to lend to older borrowers as they see them as a riskier prospect once they retire – meaning those in their 40s who want to borrow past retirement end up being rejected.
A study for Nottingham Building Society found that 37pc of brokers had seen a rise in the number of customers being rejected for mortgages and remortgages.
A survey of customers found that 17pc had been turned down for a mortgage because of their age. This rose to 21pc among borrowers aged 45 to 54."
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/…
I also notice that household deposit growth was also only $678m v housing lending of $1.6b, so no one is saving any more, they all want houses (which should be sanity-adjusted) ... last 3 months tells a story ... only $1.7b in household deposit growth vs $5.6b in housing lending growth! Ouch.
The RBNZ watches these figures closely, so will be concerned at the continuing increase in the rate of mortgage borrowing.
I think not - surely it's intentional?
A monetary policy regime narrowly focused on controlling near-term inflation removes the need to tighten policy when financial booms take hold against the backdrop of low and stable inflation. And major positive supply side developments, such as those associated with the globalisation of the real side of the economy, provide plenty of fuel for financial booms: they raise growth potential and hence the scope for credit and asset price booms while at the same time putting downward pressure on inflation, thereby constraining the room for monetary policy tightening. Borio page 12 of 38.
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