Mortgage borrowing subdued despite prospect of a National Govt

The property market remained flat last month, as the election loomed and high interest rates took their toll.

Latest Reserve Bank (RBNZ) data shows banks wrote $5.2 billion of new mortgages in September — 10.2 per cent less than during August and 1.2 per cent more than in September last year, when the property market had slowed.

The value of new mortgages written in September was less than in September 2019, 2020, and 2021.

While the official cash rate (OCR) has been on hold since May, banks have continued to hike their mortgage rates, citing high wholesale interest rates.

In the three months to September, mortgage holders collectively paid $4.6b in interest. While this was the most since at least 2014 when records began, the portion of interest paid relative to the total value of mortgage debt was larger before 2016.

RBNZ data also shows investors did not act on political poll results released in August and September, suggesting there was a high likelihood of a more investor-friendly National Party-led Government coming into power.

Investors accounted for 17.2 per cent of new mortgage lending in September — a similar portion to the previous month.

During the Covid-era property boom, investors accounted for about a quarter of new lending at the expense of first-home buyers, who have over the past year taken advantage of a more sluggish market.

National’s policies, if implemented, are expected to put some upward pressure on property prices.

National campaigned on easing the bright-line test (a de facto capital gains tax for investors who buy and sell property in a short time), allowing investors to once again deduct interest as an expense for tax purposes, and allowing foreigners to buy houses worth more than $2 million provided they pay a new foreign buyers’ tax.

National has historically also been very open to immigration, which has bounced back exceptionally strongly this year.

Nonetheless, CoreLogic property economist Kelvin Davidson couldn’t see investors making a full-scale comeback in the near-term.

He noted the pullback over the past few years had been driven by smaller players, or “mum and dad” investors.

“It’s certainly quite difficult to get the sums to stack up on a ‘standard’ existing rental property purchase at present,” Davidson said, noting the RBNZ’s loan-to-value ratio restrictions require most investors to have deposits of at least 35 per cent.

“The negative gap between yields and mortgage rates currently sits at its highest [worst] level in around 15 years, meaning large cash top-ups from other income sources are typically required.

“For new-build property purchases, the sums look different, given they still have full interest deductibility for 20 years.”

Looking ahead, Davidson saw the combination of low gross rental yields and high mortgage rates remaining significant hurdles.

He also noted that from next year, the RBNZ had been empowered to start capping how much banks lend to borrowers seeking a lot of debt relative to their incomes.

The bank has not committed to imposing such restrictions (aimed at maintaining financial stability) — not yet, at least.

Nonetheless, Davidson was keeping an eye on smaller investors possibly perking up the most.

“The ‘mum and dad’ buyers will be a group to track closely again,” he said.

“They may already have some cash in the bank, a bit of equity in their own house, and less to lose from a possible debt-to-income restriction system.”