By September this year, that portion had risen to 21% – a decent jump, but a level still a wee way off the 25% portion reached during the peak of the pandemic (when addition to slashing interest rates, the Reserve Bank completely removed its LVR restrictions).
CoreLogic NZ chief property economist Kelvin Davidson said investors were a group to watch in 2025.
He noted gross rental yields had been trending higher – albeit slowly – as property values had weakened and rents had risen.
From a floor of 2.8% in late 2021, rental yields are now at 3.9% – the highest level since early 2016.
“Even though rental yields have trended higher, they’re still quite low compared to mortgage rates, so no doubt some would-be property investors are watching and waiting for interest rates to start falling to an even more favourable level,” Davidson said.
“That said, on individual deals, clearly some savvy investors will already be able to secure yields that exceed the market averages.”
Looking ahead, Davidson believed a “typical” mortgage rate of around 5.5% could start to entice growing numbers of investors back to the market.
However, Davidson said new debt-to-income mortgage lending restriction imposed on banks by the Reserve Bank would prevent the market from really taking off.
The rules mean no more than 20% of a bank’s new lending to investors can go to those seeking debt worth more than seven times their incomes (the threshold is six times income for owner-occupiers).
Banks are required to put all the debt a prospective borrower has into the equation, not just the debt they’re seeking to buy a particular property. Similarly, they can consider all the borrower’s income, not just their salary/wages.
The restrictions haven’t had any bite yet because high interest rates have made borrowing relatively large sums unaffordable for many.
But once servicing debt becomes cheaper, and people seek larger loans relative to their incomes, the rules will start to bite.
When interest rates were super low during the peak of the pandemic – as much as 45% of new bank lending was to investors who took out debt worth more than seven times their annual incomes. By July this year, this portion had fallen to 5%.
“It remains to be seen what the net impact will be,” Davidson said.
“Of course, whatever trade-offs investors might face in terms of lower funding costs but tougher credit rules, the exemption from the debt-to-income restrictions for new builds could continue to make them a very strong option for would-be buyers.”
Any uptick in investor activity may come at the expense of first-home buyers.
Like investors, they accounted for 21% of new mortgage lending in September, a fall from the 25% mark hit last year and a small rise from during peak of the pandemic when investors were very strong.
Taking a step back, the total value of all new monthly mortgage commitments in September ($6.5b) was worth more than in the Septembers of 2019, 2022 and 2023, but less than in the same month in 2020 and 2021.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.