Providing commentary around the results of its biannual credit conditions survey, completed by 15 banks in April, the RBNZ said, “Household credit availability has stabilised after incremental falls over the last two years.
“However, there remained some tightening in price factors due to rising interest rates. The current economic environment was seeing most banks maintain a conservative lending approach, with affordability assessment using higher assessment rates than seen in recent years.”
Back in 2021, when mortgage rates were in the 2 per cents, the large banks were testing mortgage applicants at between 5.5 and 6.5 per cent.
Mortgage rates are now above some of these test rates, in the 6, 7 and 8 per cents.
The RBNZ said, “Banks have been willing to accommodate requests for conversion from principal and interest to interest only, to provide relief to customers facing rising debt servicing costs and living costs.”
Banks entered the current period of high interest rates and tight credit conditions with relatively small portions of their mortgage books being interest only.
Just over 17 per cent of existing mortgage debt was interest only in December, meanwhile 19 per cent of new lending was interest only in February, according to the latest available data.
Both these portions were the lowest they’d been since at least 2015, when the RBNZ started collecting this data.
While banks expect credit conditions for housing debt will remain as it is over the next six months, they see demand for mortgage debt continuing to fall from a very low base.
In February, the value of new mortgages issued ($3.8 billion) was the lowest since records began in 2013.
“Over the next six months, mortgage demand is expected to remain subdued, as the same underlying factors remain present, including high interest rate environment, speculation of further fall in house price and weak economic outlook,” the RBNZ said.
“Borrower sentiment will likely tend towards more caution due to the fast-changing housing market conditions.”
As for other types of debt, banks expect credit conditions to broadly remain as they are for corporate/institutional loans, small to medium-sized business loans and commercial property loans.
Meanwhile, they see conditions loosening a little over the next six months for agricultural and consumer loans.
Banks told the RBNZ credit demand from SMEs was being affected by tougher economic conditions.
“Credit demand has been driven mainly by working capital needs, as businesses deal with cost escalation, staff turnover and lingering supply chain bottlenecks,” the RBNZ said.
“Banks are supporting viable existing customers with credit lines and will work with any potentially stressed clients in the near term.”
The RBNZ said corporate business lending has been slightly stronger, with demand for working capital due to supply chain delays and inflationary pressure.
“Some longer-term investment decisions have been put on the back burner in line with a general slowing in economic activity.”
Credit demand for commercial property reduced significantly over the past six months and is expected to be subdued in the near term due to rising interest rates, higher development costs (including materials and labour) and lower demand.
“That said, parts of the sector have experienced quite diverse lending environments, with industrial properties and high-grade office space performing well as opposed to increasing vacancy rates and subdued credit demand for retail properties and lower-quality offices,” the RBNZ said.
Finally, banks saw an increase in demand for debt from the agricultural sector for working capital due to cost pressures and high interest rates. This was despite strong cashflows.
“A number of businesses have utilised (or planned to utilise) available cash for capex or other investments and are requiring some short-term working capital support,” the RBNZ said.
“Banks anticipate this will remain similar over the next six months.”
