House price increase NZ

Mortgage lending soars

Will house prices increase as total NZ mortgage lending soars?

The more funding there is available to purchase homes, the more the price of homes can rise.

The mortgage lending market is growing robustly according to the Reserve Bank’s latest figures, which recorded a $1.1 billion jump compared with the same month a year earlier, the fourth such increase in a row and the strongest burst of activity in four years.

The total we all owe in mortgages is now $6.53 billion. These figures underline a resurgent housing market, boosted by record-low interest rates in the final months of 2019.

Reserve Bank figures also showed a substantial rise in investor lending, which increased to $1.29 billion in December 2019 from $949 million in December 2018. First home buyer lending is going strong, with $1.2 billion borrowed in December 2019 compared to $924 million the previous year - in numerical terms the amount borrowed by first home buyers was just shy of the record amount borrowed. Owner-occupier lending was also slightly up on 2018.

The year 2019 saw some conducive developments for the housing market:

  • In January 2019 the Reserve Bank's loan to value ratio (LVR) restrictions (first introduced in 2013) were loosened further, and
  • Then later in the year the RBNZ cut interest rates.

Meanwhile, the data shows that lenders appear to be more willing to issue high LVR loans. High LVR borrowing reached $724 million last month, the highest figure on record, dating back to 2014. That said, lenders are still well below their LVR “speed limits”, so the growth is not pushing the bounds of responsibility.

Given the latest mortgage figures there would appear little chance of further relaxation of the LVR rules for now.

What next for house prices?

Economists (who rarely agree on anything!) have recently been upping the ante with predictions about the size of house price rises this year. Westpac economists had a longstanding prediction of house price inflation reaching seven percent this year, which they are now saying may be reached earlier than they thought, while ANZ economists have recently reviewed their forecasts upwards and now see house price rises of eight percent this year.