High-LVR lending spike "unlikely to concern" RBNZ

by Ksenia Stepanova27 Mar 2019

Low-deposit first home buyers drove mortgage activity in February, with data showing a 46% increase in the volume of high-LVR loans compared to the same month last year. Overall mortgage lending increased to $4.8 billion - up by $130 million from February 2018.

According to CoreLogic, high-LVR loans to first home buyers grew significantly and “far outstripped” overall volumes, but banks are still retaining their cautious stance and remain a decent way off from the Reserve Bank’s LVR speed limits.

CoreLogic senior property economist Kelvin Davidson says RBNZ is unlikely to be concerned about this spike in high-LVR lending, but they will undoubtedly be keeping a “close eye” on the figures as they develop over the next few months. When it comes to owner-occupiers, high-LVR lending was roughly the same as the previous month, dropping slightly to 12.0% from 12.1% in January. Davidson says these loans will only be going to the “best” borrowers in any case, given the banks’ strict lending criteria and income and expense testing.

“Looking ahead, the rise in mortgage lending looks set to roll on, giving support to sales volumes and property values,” Davidson said.

“Competition amongst the banks will stay pretty intense, and this will lead to more attractive deals for borrowers. Indeed, the past week or so has seen last year’s mortgage rate wars kick into gear again, with several other banks now joining the first-mover HSBC in offering two-year fixed loans at sub-4% rates.”

“Tomorrow’s OCR decision will almost certainly keep the base rate at 1.75% and reiterate the outlook of no change until 2021,” he continued. “This will also help maintain the current low mortgage rate environment.”

Davidson says the property market is also benefiting from relative stability given the majority of mortgages are fixed-rate loans, and does not anticipate any downturn similar to that in Australia, where most mortgages are floating rates.

“That provides a solid footing for our property market by giving households some breathing space in the event of a sudden or sharp rise in mortgage rates,” he said.

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