DTIs and LVRs: Who'll benefit most from impending home loan shake-up?

1. Mortgage lending recovery is a slow-burner

Last week’s Reserve Bank figures showed that the recovery in mortgage lending volumes is not exactly off the charts, much like a lot of other housing market indicators at the moment. There was $6 billion of gross new lending in March, practically the same figure as a year ago, after a previous run of seven months of increases. There may be just a timing issue here – some of March’s activity might have already been pulled forward into February – but either way, progress is slow. The breakdown of the data showed that still only 8% of owner-occupiers are taking out low deposit/high loan to value ratio (LVR) loans, which is quite a way below the 15% allowance.

2. Finally, details about debt to income limits?

Speaking of mortgages, it could potentially be a big week for banks and borrowers, with the Financial Stability Report (FSR) due from the Reserve Bank on Wednesday. Ordinarily, this report can come and go pretty quickly, just reviewing what’s happened to our financial system over the prior six months. But it’s also occasionally used to set out significant policy announcements, and this time around the Reserve Bank might provide the final details and timing for a near-term easing of the LVR rules and the introduction of caps on debt to income ratios (DTIs).

Given that elevated interest rates are currently limiting maximum loan sizes anyway, DTIs won’t do much straightaway. Looser LVRs may tend to benefit investors more than owner-occupiers, but again, interest rates are still a big hurdle here too (and smaller deposits simply mean bigger loans!).

3. The labour market is also in the spotlight

Coming just after the FSR, Wednesday will also see Stats NZ publish the latest (Q1) official figures on jobs and unemployment. Recently the unemployment rate has been inching higher (from a low level), not because of job losses, but because there is a rising supply of labour, off the back of high net migration. On the latest results, that combination might well prevail again, but an added upwards boost to the unemployment rate from actual job cuts could well start to play out in the coming quarters. Certainly, the news around public sector employment has not been good lately.

CoreLogic chief economist Kelvin Davidson: "Smaller deposits simply mean bigger loans." Photo / Peter Meecham

4. Dwelling consents still likely to be dropping

On Thursday we’ll get the latest dwelling consents figures from Stats NZ, covering March, and the downwards trend is pretty likely to have remained in place. It’s hard to see the construction sector gathering speed again in the near term, which all else equal, does raise the chances that we see housing shortages re-emerge at some stage down the track. But at least the silver lining is that we’re still a long way away from the outright slump in new house-building seen after the GFC, so the risks of shortages, for now, are lower than back then.

5. So where are we at?

I thought I’d just finish off this week by summarising where I see the housing market currently sitting. Sales volumes and house prices are generally rising, but the progress is slow and patchy, from month to month, and region to region. Mortgage rates remain a challenge, but at least finance-approved buyers are enjoying plenty of choice/listings on the market. Buyers have the bargaining power, but it’ll be interesting to see how many vendors are prepared to budge to achieve a sale, especially given that job security is dropping a little. Basically, an underwhelming upturn still seems a fair description of the market in 2024.

- Kelvin Davidson is chief economist at property insights firm CoreLogic