Banks expect mortgage demand to drop - survey

by Ksenia Stepanova17 Jul 2020

New Zealand’s main banks have seen a decline in lending demand over the first half of 2020, and are expecting a further drop in mortgage demand for the rest of the year, according to a new Credit Conditions Survey released by the Reserve Bank.

The survey was commenced prior to the announcement of lockdown, and was completed in the last two weeks of June 2020. It asked 12 New Zealand-registered banks - including the big five - about their expectations for the second half of the year, and while banks expected increased lending demand for working capital from SMEs and corporates, household lending is expected to fall.

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Banks reported a drop in demand for mortgage lending over the first half of 2020, and banks noted that enquiries dropped substantially due to lockdown. However, enquiries from both owner-occupiers and investors resurfaced in May, though not enough to predict an increased demand over the second half of 2020.

“Banks noted thatlower interest rates may support demand, however banks predict the economic impacts of COVID-19 will largely offset this,” the survey stated.

“One bank noted they expect more distressed house sales as government financial assistance packages begin to roll off and the level of unemployment increases. Banks also expect increased unemployment will dampen demand for consumer lending.”

Banks also expect demand for credit cards and personal loans will fall, as the choice of ‘buy now pay later’ options grows.

When it comes to mortgage lending standards, banks expect those to remain “broadly unchanged.”

Read more: NZ on track for a ‘V-shaped’ recovery

“Whilst banks reported no material changes to their serviceability standards,they noted COVID-19 has resulted in greater income uncertainty given the likelihood of higher unemployment and fewer hours worked,” the survey noted.

“Banks therefore expect to performmore thorough due diligence to assess income and job security, with higher haircuts applied to variable or ‘at risk’income (for example, bonus, commission, boarder/flatmate rent, Airbnb income) included inservicing assessments.

“One bank did note that high-LVR applicants would likely require very strong servicing positions and that property type and location would need to be less susceptible to price declines.”

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