By David Hargreaves
The annual rate of growth in the total outstanding in mortgages increased last month for the first time since late 2016.
The rise follows the the stabilising of the growth rate in the previous three months following over a year in which the annualised rate of growth in mortgage borrowing had slowed month-by month from a peak rate of 9.3%
The latest Reserve Bank figures monitoring sector credit show the amount outstanding on mortgages as of April was $248.51 billion compared with $247.377 billion in March, which resulted in an annual growth rate of 5.9%. Those figures include both banks and non-banking lenders.
The latest month's figures mean the annual growth rate blipped up to 5.9%, from 5.8% as of the previous month.
The 5.9% figure is the highest so far this year.
While obviously the slight blip up is not much of a rise and the current level of growth is well below what it was up till quite recently, the latest figures follow on closely from the RBNZ on Wednesday stating in its latest Financial Stability Report that the financial system’s vulnerability to household debt has not changed materially since the previous FSR.
"Ultimately, continued stabilisation, or a further reduction, in the growth rates of household debt and house prices, will be required before the risk to the financial system is normalised," the latest report said.
The RBNZ made no further move to relax the loan to value ratio (LVR) restrictions and Governor Adrian Orr said the central bank would be waiting "at least" till the next FSR is delivered in November before there's any possible further relaxation.
The RBNZ closely watches the rate of credit growth and while it will not have seen anything to particularly concern itself with the latest monthly figures, the slight rise in mortgage borrowing growth rate if continued for any period of time is likely to dampen any prospect of the the central bank moving to further relax the LVR rules this year.
The rules were relaxed a little from January 1 this year and the mortgage figures have shown a slight move upward since, particularly from first home buyers and from investors - albeit that the investors' share of the overall market had plunged from the last significant tightening of the LVR rules in mid-2016.
ASB chief economist Nick Tuffley said the "resilience" of housing credit growth is justification for the RBNZ to wait further before easing the LVR restrictions.
"The housing market is in a healthier state than in last November, when the RBNZ decided to ease the LVRs slightly," he said.
Elsewhere in the latest sector credit figures, the rate of annual growth in consumer borrowing, which surged to as high as 8.5% early this year, declined again last month, down to 7.1% from 7.5% as of March.
Business borrowing, at $109.141 billion as of April, was up from $108.527 billion in March, however, the annual rate in growth slipped to 4.1% to 4.6% and it has generally been dropping since the new Government came in, which would square with the lagging level of business confidence seen in surveys.
"The continued slowdown in business credit growth needs watching," Tuffley said.
"Business confidence has not recovered much ground since the new Government was formed, and has starting weakening again. There is a growing risk that the post-election patch of slower growth extends into the second half of the year."
Agricultural borrowing, which continues to be an area of concern for the RBNZ, was not much changed in the past month, with the total borrowed at $60.762 billion down a little from $60.793 in March and the annual rate in growth down slightly at 2.6% in April from 2.7% as of March.
7 Comments
An explanation of banking that I hope you all enjoy. This little clip is now 7 years old. The debt issue was already a problem back then but, low interest rates, specu-debtors, massive DTI ratios and interest only borrowing, not forgetting, turn a blind eye regulators and governments, have allowed it to continue to a level that will require a fair sized correction.
Longest amortization terms on mortgages. A look into our future
Japan 45 years then in1995 -100 year mortgage was first made available
Europe same as Japan
USA 45 years mortgages were offered during the housing bubble of the early 2000's and talk of creating 50-100 terms in the near future.
Canada /Australia and NZ at 30 years and facing large consumer household indebtedness. Housing bubble risk and concerns of default on a rising rate environment.
Can you guess what's coming next at a bank near you.....I think they will call it "My childs inheritance mortgage". A legacy left over by an indebted world to their loved ones.
Great way for the banks to guarantee a consistent revenue stream for the next 100 years though ......and for consumers to continue to feed GDP.
If you look at a smaller scale you can get a better idea of where we're going. Cars in the US are often financed for around $500 per month. Long ago that would be a 3 year car loan which is reasonable, then 5 year car loans become more common since the GFC, and now 7 year car loans are becoming common.
These car loans have negative equity for most of their term especially the 7 year loans. They also roll in previous debts so I've been seeing a $25k car with a $64k loan. The vehicle is supposed to be security for the lender but this is absurd.
What you see is that longer terms are needed to keep the payments at the same level which is affordable. So mortgage terms ever increasing is really bad and it's not going to help anything. With mortgages increasing at 5.9% per annum versus GDP increasing at around 2.9% we should be concerned. How much GDP drag is being caused by our excessive household debts?
(minority report) Although yearly housing lending growth is up, the monthly growth rate is down as predicted, but part of that is autoregressive noise. The decline isn't as bad as it could have been. Business credit acceleration looks like it's starting to go down which is not unexpected given the historical precedent. see here.
The lending acceleration is interesting because according to modern monetary theory this has a macroeconomic impact on GDP. Historically business lending acceleration lags housing lending acceleration. If you look at the acceleration graph It appears that a decline in business lending is baked into the cake, and this would have nothing to do with the change in government.
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