Mortgage wars should spark boost to lending

Mortgage lending was slashed to about half of normal levels last month due to Covid-19. Photo / 123RF

Mortgage lending was slashed to about half of normal levels last month due to Covid-19 restrictions but economists say the latest round of 'rate wars' should spark some renewed buyer and seller enthusiasm.

For those keen on picking up a sharp mortgage, record low wholesale rates have seen Kiwibank drop its one-year fixed rate to 2.65 per cent, with both ASB Bank and AIA/Sovereign offering two-year fixed loan to value ratio options at 2.69 per cent. HSBC's premier two-year rate is as low as 2.60 per cent.

The lower-rate options could perk up a market, which in April counted only $2.7 billion worth of mortgage lending, down 55 per cent from $5.5b in April the year earlier across owner-occupiers and investors alike.

Corelogic senior property economist Kelvin Davidson said it was likely transfers from other lenders and new mortgages would have fallen more sharply than refinancing of existing loans, keeping in mind the 80 per cent slump in property sales for the month.

Reserve Bank numbers this week also showed a shift toward interest-only mortgages, as borrowers take advantage of lenders' flexibility to reduce their household outgoings over the next few months.

Mortgage deferrals

This is supported by NZ Bankers' Association figures showing more than 61,400 customers have opted to reduce repayments on loans worth about $20b – and another 54,200 borrowers have deferred payments altogether on loans of $19.1b.

Of that, about 3 per cent is personal consumer lending while the overall stock of mortgage debt is about $278b.

Davidson said a key test for the strength of the property market would be during August and September when deferral periods come to an end.

At the same time, the quantity of lending on high debt to income ratios had crept up in recent months, especially for first home buyers.

Cautious lending

"So banks are likely to stick to cautious lending policies, even if the RBNZ isn't mandating that approach, given the general reduction in job and income security across the economy."

Davidson said while April was clearly a subdued month for the property market and mortgage lending there has been encouraging signs for appraisals generated by real estate agents, across new listings and valuations.

He is expecting mortgage and sales activity to have rebounded this month.