Latest Reserve Bank monthly figures show the share of borrowing by the housing investor is continuing to drop sharply to new lows

By David Hargreaves

The galloping retreat of the housing investor witnessed in October has been repeated - and more so - in November, according to the Reserve Bank's latest monthly borrowing by lender type figures.

The figures show that investors accounted for just $1.091 billion of the $6.224 billion worth of mortgages advanced by both banks and non-banking institutions in November. 

That's a share of just 17.5%, which is easily a new low since these figures were first released by the RBNZ in August 2014. 

It beats the previous low of 18.7%, which was also easily a new low and which was just in October. 

Before the RBNZ clamped down on investors in 2016 by requiring them to front up with 40% deposits, the investors were taking about 35% share of the mortgages advanced. 

That dropped fairly swiftly before levelling out in the low 20% region. 

It's not clear exactly what has prompted the latest decline, but it has been swift, with the share falling from 21% in September, through that 18.7% and now just 17.5% in the latest month.

All eyes will now be on what happens early next year when from January 1 the RBNZ will be cutting the investors a little more slack, allowing them to front with deposits of just 30%. 

But bear in mind that the latest sharp falls in investor participation have come after the deposit limit was relaxed by the RBNZ at the start of this year from 40% to 35%.

The imposition of tough borrowing limits on the investors seemingly gave much more room in the market for the first home buyers. 

That trend is very much continuing.

In fact for the first time in November the FHBs came close to borrowing more in dollar terms than the investors, with $1.026 billion advanced to them, representing 16.5% of the total. 

It's now the second time this year the FHBs have borrowed more than $1 billion in a month, while the percentage of the total lending that's been going to them has stayed fairly constant in an around the 16.5% level - which is a marked change from before the investor limits were slapped on, when the share was at times in single digit percentages.

The total amount advanced to all borrowers exceeded $6 billion for only the second time this year, and just the third time since November 2016 - when the RBNZ LVRs were really starting to bite.

The RBNZ's separate Sector Lending figures, also released on Thursday, backed up the fact that November was a strong month for lending by recent standards. 

The November figures brought the annual increase in the total advanced to 6.1%, up from 6%. 

The RBNZ keeps a close eye on this figure and gets concerned if it starts to rise markedly. Having dropped from 9.3% as at December 2016, the rate of growth has just been gradually edging up this year from 5.8% in March.

The RBNZ will be watching these figures after the LVR rules are loosened in January to see whether there is any sharp lift in borrowing.

ASB economist Kim Mundy said mortgage credit growth "remains surprisingly resilient".

"Regional housing markets continue to perform well with strong demand (possibly further bolstered by the recent falls in mortgage rates) and low supply supporting solid price growth. As a result, mortgage credit growth has remained stronger than expected over 2018. Looking forward, the easing Loan-to-Value restrictions may further support demand at the margin."

Mundy said, however, she still expected regional price growth to slowly ease as levels catch up with Auckland prices. 

"On balance, we continue to expect mortgage credit growth to continue to slowly trend downwards."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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47 Comments

"It's not clear exactly what has prompted the latest decline, but it has been swift, with the share falling from 21% in September, through that 18.7% and now just 17.5% in the latest month."

OMG, it is quite clear actually, the investors just got real and realize the risk of investing in the bubble even though this bubble has got hell of a lot of support.

Around the same time National MPs started campaigning for deposit insurance, maybe?

Hard to believe that 17.5% of loans are still going to people foolish enough to aspire to be amateur landlords and deal with all the headaches and fees that entails. If you must own real estate, why not just use a low cost REIT index fund?
https://smartshares.co.nz/types-of-funds/smartsector/nzpropertytrust

There are plenty of people doing very well out of property investment, particularly those who bought with cashflow in mind. Rents continue to increase and the upcoming minimum wage increases will flow into rents as well. Not everybody is speculating on capital gains with large year or year losses.

Can’t think why invest in Auckland property right now
Only fools & those spruikers who pretend they’re rich on unrealized gains that appear to be declining
As I write this the news informs that Trump wishes to fire Jerome Powell at the FED !
Wait for the collapse in markets if the fool does follow through

..or have we re coded investors to 'other owner occupiers'?

There will be many who will cheer that investors are leaving the market.
Those cheers will turn to tears before long.
Investors provide most of the private rental accommodation so if there are fewer rentals guess what?
Rising rents and more clamour for subsidised state housing.
And there are more investor burdens coming- ring fencing losses, capital gains tax and more.
Beware of unintended consequences.

Not all renters are poor. Saving renters can become owners too. Presently it's cheaper to rent vs owning. In depth analysis done already;

https://www.interest.co.nz/property/rent-or-buy

Although, being we are at the very beginnings of this adjustment-transition, there's certainly no hurry to buy. Post a global shock and our economy tanking, migrant workers will head elsewhere in droves - (Ireland style) ,leaving many rentals vacant anyway.

Lol, so true! I know several wealthy people who rent, and many who own but plow all their capital into home maintenance and associated costs with nothing left to invest, hence are poor.
Yo'd have to be fairly economically illiterate to buy into this over heated market.

This could only happen if investment property disappear. But it won't.
So no tears only cheers.

Investors will soon return if the case for investing stacks up again. Perhaps some combination of rent rises and price falls will make things more attractive?

well successfully sold my rental today in Hamilton - was housing 6 single people - most with mental health backgrounds - but was bought by a young couple who intend to live there - on there own and asked for vacant possession! Just dont need the ongoign hassle - uncertainty of what new regs will be brought in - letting fees - and proposed tax changes - so cashed up took a nice capital gains - and will reinvest in something else - and before people start - the builders report identified three holes in the gib - all caused by tenants - one cracked window and a beer can in the gutter as the only faults - very warm and dry home - with high speed fibre - sky sports - no bills for $160 a week all in! Will be selling my other hamiilton one in March - likely to be the same result !

One example of where a young couple (FHBer??) has made 6 people in a rental property look for alternative accomodation. Taken a house out of the rental pool all for their greedy selves. We can’t have people owning their own homes when we have a housing crisis.

so where did the young couple come from thin air, they were very likely renting as well so one rental becomes empty and one gets sold to someone that was renting

Yeah but how dare they buy their own home.

Teehee. Thanks for that Dan. I love it.

Well done you, kpnuts.

Like many FHBs they were probably reluctantly staying with mum and dad building their deposit. So no rental spaces freed up. Just a happy mum and dad pleased to have their space back.

Somewhere six new people homeless? Better bring in more people, we need them, apparently. It seems we are too feeble to build houses for ourselves. Ah, the joys of modern life.

Much of the rental market these days does indeed need to be supplied by subsidised state housing, and the sooner the govt gets to taking a leaf out of Michael Joseph Savage's books, the better.
Everything is so skew-whiff now, that is what it will take to take us back to some sort of equilibrium.

Have you noticed the crappiest homes on the ugliest and roughest streets are all housing nz owned...Some private rentals owners also have a lack of interest but at least there is a percentage that do their bit. Of the new houses that get built for HNZ they look shabby pretty quick.

the selling of the state housing stock since rogernomics has been a disaster.
the funds should have been used to rebuild in new areas, with modern replacements and to fit todays requirements instead of being used by government after government to prop up the books
ie sell the million dollar full section houses and build some smaller townhouses to house more people.
if you see what they are now doing in mangere finally they are doing something positive with the old stock
https://mangeredevelopment.co.nz/

Have you been walking around with your eyes shut lol a share of the tamaki regeneration is hnz plus others.

We need more housing projects!

"Investors provide most of the private rental accommodation so if there are fewer rentals guess what?"

There are also fewer people looking for rentals because those former rental houses were bought by former rental occupants?

(Cue comments about how every rental has 12 occupants and owner occupied only 2. Don't worry, some boomers will start (probably already have) moving from the 3+ bedroom family home into retirement villages soon, and those empty bedrooms will soon get filled again as their houses sell to either a greedy landlord who will move in 6 students, or if the landlords aren't buying a large family of [insert race of choice] immigrants.

Because everyone likes using the term "greedy landlords" is it ok if I always use the term "scummy tenants"? No, I won't do that because that would be a massive generalisation.

to be fair, the comment was 'a greedy landlord moving in 6 students', namely the dodgy practice of renting a place room-by-room to maximise returns but minimise tenant comfort .. i would say that was greedy. Wouldn't you? They weren't saying ALL landlords were greedy.

Now, if you to talk about tenants who trash a place and are in arrears, you're more than welcome to refer to them as "scummy tenants"

It was of course hyperbole... some landlords are quite good, I quite like the one we have here, no formal inspections, no rent rises, even dropped some beers around when I cleared away the mess of a few branches off a tree that got bought down in the storm a while back.

You usually find the cheap/greedy landlords are the ones complaining about scummy tenants, because they rent shitty dogboxes to the desperate, and no decent tenant would bother dealing with them.

"It's not clear exactly what has prompted the latest decline, but it has been swift, with the share falling from 21% in September, through that 18.7% and now just 17.5% in the latest month."

Looking at the numbers - the amount lent to investors is pretty static YoY. It's more a factor of the denominator going up materially, driven by OO.

There was no doubt a lot of refinances approved in November as a result of some sharp sub 4% rates everywhere. Almost all of those offers excluded investment properties, so perhaps that had an impact.

Investors fear what we all fear - The 'rich pricks' CGT currently being justified by a committee near you.

Maths has been broken for years. Now that cap gains are flat and tax will apply its eject eject eject. Shows the true specuvestor.

If an investor sells a house you criticize them for doing so. I thought that making property investment unviable and scaring investors to liquidate and thereby bring down housing prices was the socialist's objective??

Investor equals reasonable equity, maintained and generating a decent yield. Tax is also paid on positive cashflow.

Specuvestor equals debt stacked to generate income tax losses. Capital gain focus hence hitting or planning exit. Never in it for the yield.

Zachary, have you noticed the sale price of recent Auckland housing, just the first page?

Anything out of the ordinary? I see eight houses sold over RV and nine below.

Not sure what special filter you're using. . I know you are filtering on sold properties. . But that brings up older sales to fit your narrative. .

Just filter on Auckland properties. . 8 sold below. 1 over. . 3 didn't have a comparative price. .

Gosh, you mean the RBNZ actually know that mortgage growth above the rate of growth of nominal GDP is inflationary? They seem to be trying to do the impossible, increase lending and inflation without forcing house prices up in the process. I guess if you only have flawed theories about how modern money works then you have no choice but to cling to them in desperation.

Interesting times ahead, with lots of surprises and volatility, methinks.

This is the most interesting bit;

It's now the second time this year the FHBs have borrowed more than $1 billion in a month, while the percentage of the total lending that's been going to them has stayed fairly constant in an around the 16.5% level - which is a marked change from before the investor limits were slapped on, when the share was at times in single digit percentages.

First home buyers have gone from single digit percentages to a stable 16.5% of total lending - to me that's proof that Adrian Orr's strategy has worked.

With the negative things being brought in by this so-called government then of course investors will. Get the stitch.
Reality is though rents will increase and established well heeled investors that stick around , are going to have a field day!
Gordon, challenge still there for you!

this so-called government

Wow, so 1 year in and you are still in the denial stage!

They're not called the Collection of Whingers for nothing.

Get up to speed Rick. Spend a few minutes in the NZ First FB page and see what whinging is about.

You follow the NZ First FB page?

There are plenty of people doing very well out of property investment, particularly those who bought with cashflow in mind. Rents continue to increase and the upcoming minimum wage increases will flow into rents as well. Not everybody is speculating on capital gains with large year or year losses.

For those who are negative gearing. to offset the "ring-fencing" of a $5,000 net loss, therefore a $1,500 return, they need to put up rents by $30 per week. Problem solved.

I suspect the drop-off is the increased servicing requirements. It used to be equity was the handbrake, now servicing is as most loans are assessed at over 7% P&I on rental properties.

Yes I agree this is a big handbrake.

That and Chinese investors will have realised the easy gains have stopped and will be looking elsewhere.

Just noticed a rental being advertised that I had looked at purchasing a few months ago. Block of five flats in Nelson CBD all let to folks with mental health issues. I flagged it on the basis could not make the numbers work well enough. The flats have been refurbished with new paint and a few other things. Sale price $1,035,000 Rent being asked about $40 a week more than I was thinking and about double what the previous tenants were paying. At these new rents I could have made it work. Bother should have purchased them. Thanks Jacinda and Phil for your help. I have two flats to let after I get home from Christmas holidays. Will ask $50 a week more than the outgoing tenants were paying. I better allow for some more costs the Government is throwing at us. Let the Government house the previous tenants.

Or you could stop complaining and focus on your job in the productive economy (if you have one)