New mortgage issuance falls to record low for a November month

The housing market is cooling off, with investors leading the retreat. Photo / Bevan Conley

Activity in the housing market is coming to a screeching halt, with banks issuing a record-low number of mortgages for a November month.

Banks made 16,701 new mortgage commitments in November – 1583 more than in October, but the lowest number for a November month since Reserve Bank records began in 2013.

Investors continued to lead the pull-back from the market, making way for first-home buyers.

While the pie of new mortgage lending shrank in November to below pre-Covid levels, first-home buyers’ slice of the pie was the largest it’s been since records began, while investors’ slice was close to the smallest on record.

First-home buyers accounted for 22.4 per cent of new mortgage lending in the month, while investors accounted for 15.8 per cent.

While the trend may concern existing property owners worried about how much further house prices will fall, it shows government and Reserve Bank policies are having the intended effect.

The Reserve Bank wants economic activity to cool so inflation gets back in its box. Less activity in the housing market is an expected consequence of it aggressively hiking interest rates.

In late 2020, the Reserve Bank also became worried its decision to completely remove loan-to-value ratio (LVR) restrictions earlier that year contributed towards banks issuing more riskier loans to investors.

Around a quarter of new mortgage lending went to investors at the time.

Once the Reserve Bank reimposed LVR restrictions in March 2021, and tightened them for investors a couple of months later, investors’ retreat became notable. Most investors still need a 40 per cent deposit to get a mortgage.

The Government, in early 2021, also followed through on its policy to “support more sustainable house prices, including by dampening investor demand for existing housing stock, which would improve affordability for first-home buyers”.

It restricted investors’ abilities to deduct interest as an expense when paying tax and extended the bright-line test to 10 years.

These changes, coupled with tweaks to planning rules aimed at increasing the supply of houses, the tightening of Credit Contracts and Consumer Finance Act rules, and the big factor – rapidly rising interest rates – culminated to cool the housing market.

At $6.1 billion, the value of new mortgage commitments in November was the lowest it had been for a November month since 2017.

While first-home buyers were proportionately more prominent in the market, they still borrowed less than they did in November 2020 and 2021.

The country’s median house price fell by 12 per cent between November 2021 (when prices peaked) and November 2022, to $810,000.

Forecasters generally believe New Zealand is about halfway through the peak-to-trough fall.

Projections are closely linked to people’s views about when the Reserve Bank will stop lifting the official cash rate (OCR).

The OCR is currently at 4.45 per cent and is forecast by the Reserve Bank to peak at 5.5 per cent in mid-2023.