Lending Market Recovery Gradual Amid Rising Mortgage Rates; Mixed Prospects for Property Owners and First-Time Buyers

Date Published: 9 January 2024

Key Facts

• New mortgage lending activity has seen a significant increase, with $6.5 billion worth of activity recorded up to November 2021.
• 55% of existing borrowers are set to see their loans re-priced at higher mortgage rates in the next 12 months.
• Loan to Value Ratio (LVR) rules continue to limit a substantial percentage of borrowers.
• The cost of finance is decreasing, particularly noticeable in two to three-year fixed mortgage rate terms.
• There’s potential for the Reserve Bank to impose caps on Debt-to-Income ratios (DTIs), which could affect the impact of falling mortgage rates on the housing market.
• Property sales activity is predicted to increase by approximately 10% in 2024, with price growth estimated at 5%.
• First home buyers (FHBs) could benefit more in 2024, as they continue to utilise their KiwiSaver funds for deposits and take advantage of the low deposit lending allowances at banks.

Article Summary

Mortgage lending activity has been on a steady rise since August 2021, with $6.5 billion in new mortgage lending activity recorded in November 2021. The increase accounts for house purchases, bank switches, and loan top-ups, marking a strong rise in the emerging trend of lending activity. Both owner-occupiers and property investors have benefitted from this growth, reflecting an overall turn in the mortgage activity.

In 2024, existing borrowers could face a setback as 55% of them are likely to see their loans re-priced to a higher mortgage rate. LVR rules, which continue to impose restrictions on borrowers, also add to the reasons for concern. Despite these challenges, there is potential good news for borrowers as the cost of finance is showing signs of a downward trend, particularly for two to three-year fixed mortgage rate terms.

However, the Reserve Bank’s potential move to impose caps on DTIs could diminish the impact of falling mortgage rates on the housing market. A consultation is expected in the next few months regarding the actual DTI rules. Looking at 2024, sales activity is estimated to increase by roughly 10% from a low base, while price growth is anticipated to be around 5%.

The overall forecast could fall short of the expectations of property owners. However, potential first-home buyers could find 2024 a favourable year. With more KiwiSaver funds being utilised for deposits, and steady access to low deposit lending allowances at banks, there could be a further boost for first-home buyers.

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