Key Facts

  • New Zealand’s mortgage lending environment is experiencing early signs of recovery with first-home buyers dominating low-deposit lending.
  • The total value of existing mortgages is $354 billion, with the overall property stock estimated at $1585 billion.
  • 54% of current loans are fixed but due to see a rate repricing within the next 12 months. Average fixed rate currently being paid by borrowers is around 5.3%.
  • The Reserve Bank is considering the implementation of debt-to-income ratios (DTIs) to restrain the next cycle when mortgage rates fall again.
  • 72% of new lending in October was fixed for up to two years, up from 56% in October 2021.
  • Upcoming rent price data is expected to show a strong increase, due to factors like rising wages, strong migration/population growth and tight property availability.
  • Migration statistics show net inflows of people to NZ have stayed high, with an increase of 119,000 migrants since the previous year.
  • Q3 GDP figures may show a quarterly rise of 0.3-0.5%, although recent data suggests patchy performance for the overall economy.

Article Summary

Signs of recovery are evident in New Zealand’s mortgage lending sector, as shown by recent activity levels. The market is primarily driven by first-home buyers in the low-deposit lending section, and despite significant interest rate increases over the past couple of years, mortgage repayment stress stays low. Existing mortgages sum up to $354 billion, indicating substantial equity in the $1585 billion property stock.

However, caution is advised as 54% of fixed loans are due to observe a rate repricing in the next 12 months, likely to a higher number as the Reserve Bank puts the average fixed rate at approximately 5.3% versus market rates of more than 7%. The Reserve Bank also noted the potential implementation of debt-to-income ratios (DTIs) as a moderation tool for when mortgage rates drop again.

Data shows that 72% of new lending in October opted for terms fixed for up to two years, suggestive of a belief that mortgage rates have peaked. Unfortunately, tenants are expected to face an increased rent prices due to a myriad of factors such as wage hikes, robust population growth and limited property availability. A net inflow of migrants also continues to support these housing trends.

The overall economic performance remains uncertain, with third-quarter GDP figures expected to reveal a small rise, even though more recent data suggest that the economy’s health could be touch-and-go in the next year. All these trends support the need for a careful approach towards the housing market.

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