Housing debt grows but rate slows for 5th month

The amount that New Zealanders borrowed for housing continued to grow in the year to May but the rate of growth declined for the fifth month in a row, new Reserve Bank figures show.

Total housing debt for the year to May was $236.38 billion, up 8 per cent.

But that was the lowest rate of growth since March 2016, ASB economists noted.

“We have expected housing credit growth to continue to slow as higher deposit requirements (a result of last year’s loan-to-value restrictions last year) and higher long-term mortgage rates dampen demand, ASB wrote in its analysis of the new statistics.

“That said, growth remains above the 10-year average of 5.4 per cent.”

The decline in the rate of credit growth for housing and agriculture will be good news for the Reserve Bank which had identified these sectors as key areas of concern in its financial stability report

Speaking to the Herald last month deputy Reserve Bank governor Grant Spencer said he felt the trend was improving.

“We think the LVRs [loan-to-value ratios] have been an important part of that,” Spencer said, referring to the latest round of lending restrictions which, from last October, required investors to hold deposits of at least 40 per cent.

Similar restrictions were introduced in 2013 and 2015, but had only limited success in slowing the market.

This time the effect has been more pronounced because retail banks had also taken a more risk averse ap- proach to lending. “Part of that is nervousness about the housing sector, but also the funding and reduced supply of deposits that they’ve got coming through the door,” Spencer said. “They are swimming in the same direction now as the policy, which wasn’t necessarily the case in the earlier LVR rounds.”

Meanwhile, ASB noted that the overall fall in credit growth was reinforced by the rapid decline in agriculture credit growth.

“Dairy farmers are focused on debt repayment now that cash flows are improving steadily. We expect this dynamic to continue over 2017 before credit growth takes an upward turn as we head into 2018,” they said.

Total agricultural debt rose to a new high of $59.53b but the rate of growth was down to just 2.2 per cent, compared to 7.3 per cent at the peak of the most recent dairy price slump in May last year.

Consumer credit growth consolidated its recent increases at $15.29b, up 5.6 per cent for the second month in a row.

Business credit growth held steady, up just 2.2 per cent, at $104.4b.

We have expected housing credit growth to continue to slow as higher deposit requirements . . . and higher long-term mortgage rates dampen demand. ASB statement