Home loan shake-up - are property investors piling back into the market?

1. Looser LVRs having an effect

The Reserve Bank released its mortgage lending figures for July last week. There was $6.7 billion of new lending – up $1.7bn year-on-year. The numbers were bolstered by first-home buyers, who are taking advantage of the low deposit lending allowances, as well as increased activity by owner-occupiers and investors.

The figures reflected the July changes to the loan to value ratio (LVR) rules. Under the new rules, 20% (previously 15%) of bank loans to owner-occupiers can be done on deposits of less than 20% deposit, and up to 5% of loans to investors can be done on deposits of less than 30% (previously 35%). We always suspected this easing in the LVR rules might lead to a burst of investor purchases. The numbers for July show that the share of all lending to investors with deposits of less than 35% was 20%, up from less than 1% in June. But the share lending to investors with a deposit of less than 30% was a low 0.4%.

Meanwhile, the debt to income (DTI) ratio caps, also introduced in July, aren’t having much of an impact, which is to be expected. Less than 2% of first-home buyers took out a loan with a DTI of more than six, and less than 4% of investors took out a loan with a DTI of more than seven. This simply reflects the fact that mortgage rates are still high enough to be doing the job of naturally limiting how much debt people can service. However, as rates fall, DTIs will become more relevant, and a ballpark figure suggests that they could be much more significant at mortgage rates of around 5.5% or less. That figure could be reached mid-2025, or maybe earlier.

2. Return of “mum and dad” investors?

On a related note, the latest CoreLogic Buyer Classification data showed that mortgaged multiple property owners (MPOs, including investors) remain very keen on new-build properties, accounting for 31% of activity in that segment in July. Meanwhile, although the overall share of buying activity going to mortgaged MPOs – across all property types and ages – remains stable at around 21%, the mix of that activity has shifted slightly more towards smaller investors and away from the larger players. With rental yields low and mortgage rates high (albeit falling), it’s still not straightforward for “mum and dad” investors to get the sums to stack up. But with the required cash top-ups now dropping alongside the fall in mortgage rates, some are seemingly dipping their toes again.

CoreLogic chief economist Kelvin Davidson: "With mortgage rates now falling, there seems a good chance that 2025 could look much better for construction." Photo / Peter Meecham

3. The labour market downturn is underway in earnest

The latest Stats NZ figures showed a 0.1% drop in filled jobs in July, the fourth in a row, with the total number of jobs down by around 25,000 from March (-1.1%). Clearly, this is a disappointing result and illustrates that even though mortgage rates will tend to boost the housing market, job losses will be working in the other direction. The weakening in the labour market took a while to get going – as it always does – but the downturn is much clearer now.

4. Dwelling consents close to a floor? Maybe?

The number of new dwelling consents approved in July (3352) was 10% higher than the same month last year, which at face value looks pretty encouraging for a sector that has been falling steadily for about two years now. That said, June’s number was very weak, so the strength in July might just be a timing issue (e.g. “payback” for June’s weakness), while Stats NZ also noted that a large, one-off development in Queenstown with multiple consents played a role too. So I wouldn’t get carried away just yet, but there are nevertheless hints here that the floor for dwelling consents might be getting closer – consistent with the anecdotes I’m hearing. Certainly, with mortgage rates now falling, there seems a good chance that 2025 could look much better for construction.

5. Busy month for short-term fixes

Finally for the week, the Reserve Bank will publish more lending stats (Wednesday), which are likely to continue to show a strong preference for shorter-term fixed rates when people take out a new mortgage, switch banks, or increase their loan. In June, 71% of new lending was fixed for up to 18 months v 54% back in December. The latest figures will relate to July – i.e. before the OCR cut and the new rate wars amongst the banks – so they’ll be interesting in their own right, but August and beyond could be even more intriguing. That short end of the spectrum could get even more popular.

- Kelvin Davidson is chief economist at property insights firm CoreLogic