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The property market showed some sign of life in August, according to the latest mortgage lending data the Reserve Bank of New Zealand (RBNZ) collects from the country’s banks.
Banks issued $5.8 billion of mortgages in August – 15.7 per cent more than in July and 6.8 per cent morethan in August last year.
It was the first time in two years that the value of new mortgage lending during the month was greater than the same month the previous year.
While the value of new mortgage lending in August was also above what it was in August 2018, 2019 and 2022, it was still 29 per cent below what it was when the property market was red-hot in August 2021.
Furthermore, the pick-up during the month came off a very low base. The value of new mortgage lending in July was below what it had been in each of the prior five Julys.
ANZ economists warned property owners eyeing a turn in the market should “be careful what they wished for”.
“If upside housing pressures result in upside CPI inflation pressures, the RBNZ is likely to respond with [official cash rate] hikes, stopping the housing upswing in its tracks,” the economists said.
“Indicators of market tightness are still far from ‘hot’ (days to sell are still above their long-run average and house sales are still weak relative to history), but things are certainly heating up,” they said.
“Close to 100,000 net migrants have entered New Zealand over the last year, and that demand for housing is not being matched by supply, adding pressure to both rents and house prices.”
ANZ economists saw house prices rising by 4 per cent in the second half of this year, 5 per cent in 2024 and 3 per cent in 2025.
ANZ economists saw house prices rising by 4 per cent in the second half of this year.
They noted banks were charging borrowers lower interest rates if they fixed their mortgages for longer durations.
Accordingly, they said fixing for longer durations would suit those who believed the RBNZ could lift the official cash rate (OCR) again or keep it elevated for longer. ANZ economists were in this camp.
“There are risks to our view (soft Chinese demand for our exports is an obvious one), but the domestic economy isn’t cooling as quickly as the RBNZ needs it to and we still think the OCR will go higher,” they said.
“For us, that’s enough to make it worth considering fixing for longer rather than shorter. Long-term fixed rates are already lower and thus provide immediate benefits, whereas fixing for shorter will only end up being cheaper if mortgage rates start to fall.”
It’s also worth noting banks have been lifting all their interest rates, as sticky inflation around the world has elevated their funding costs, despite the RBNZ keeping the OCR on hold at 5.5 per cent and suggesting further hikes are unlikely in this tightening cycle.
It will review the OCR again on October 4. While it isn’t expected to make any changes and isn’t due to publish a more fulsome Monetary Policy Statement until November, all eyes will be on whether its language suggests another rate hike could be on the cards.
Coming back to the RBNZ’s mortgage lending data, this showed first-home buyers continued to make the most of softer prices in August.
They accounted for 23.7 per cent of the $5.8b of mortgages written in the month – a bit less than the 24.8 per cent record reached in July.
The share of new mortgage commitments to other owner-occupiers rose to 57.8 per cent. Meanwhile, the share attributable to investors remained steady at 17.1 per cent.
Investor activity dropped off in early 2021, as OCR hikes coincided with the RBNZ imposing tight loan-to-value ratio restrictions and the Government starting to prevent investors from writing off mortgage interest as an expense and extending the bright-line test from five to 10 years.
The average new mortgage taken out for a property purchase in August was $551,100.
Someone with a 30-year mortgage of this size, paying 7.3 per cent interest, would face weekly repayments of $871.
Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
