It is safe to say that the last 12 months have been a bit of a rollercoaster ride with regards to mortgage lending. The banks have continued to tighten their lending policies and some major changes have occurred.
Let’s look at these changes in a little more detail.
Major Changes In Lending Policy
The last 12 months have seen a lot of change when it comes to lending. Some of the biggest differences are:
- Restrictions on overseas income (Most mainstream banks do not accept overseas incomes anymore)
- Restrictions on non-resident borrowers
- LVR tightened (though the end of 2017 saw it relax a little to 65% for Investors)
- Increase in servicing requirements
- Tightening of policy on interest-only loans
- Tightening of policy on revolving credit facility (some banks have discontinued this product)
These are just a few examples of what has been happening in the last 12-18 months, which has a huge impact on borrowing capacity.
International Opportunity
Three Chinese banks (ICBC, CCB and Bank of China) have recognised an opportunity in the market and have filled some of the gaps left by the change in local banking policy. Among the 3 Chinese banks, millions of dollars have already been lent to both local and overseas investors, and the numbers are still growing steadily.
In contrast to what we are seeing with local banks, some of the policies of the Chinese banks are in favour of the borrower. However, there have only been a limited number of accreditations issued to select mortgage advisers.
Low Equity And Interest Rates
An area where we have seen a big increase is low equity lending. Compared to this time last year, there has been more than a 10% increase for lending over 80% of a property’s value.
Interest rates have been relatively stable for the last 12-18 months. There was a small hike in April, then it came back down again. Borrowers have been enjoying an environment of low-interest rates for a number of years now, and it looks like it will stay this way for another few years. That is because NZ’s rate of inflation has been relatively low and the downside risks to the world’s economic growth have started to grow stronger.
What Does It All Mean?
Economic momentum has slowed and downside risks to growth have increased. Business pessimism is starting to impact company decisions, spending growth has moderated, and the housing market has softened. While commodity prices are elevated, the shine has started to come off recently.
That said, we don’t expect growth is about to roll over just yet.
And while inflation is low, core inflation is on the rise. The current cost pressures will see pressure on inflation increase further from here. The outlook for inflation is far from certain, which justifies why the Reserve Bank (RBNZ) is continuing to show caution.
In recent communications, the RBNZ has sent a very clear message that it is determined to meet its inflation target. So, a move up or down in interest rates is likely. If inflation materialises as we expect, the RBNZ will eventually increase the Official Cash Rate (OCR) – but that is a long way away yet, and any moves will be gradual.
What You Should Consider
Average fixed mortgage rates have fallen a little further over the past month. We still favour a 1-year fixed rate, because of last month’s slight decrease and a reduced chance that the RBNZ will hike interest rates any time soon.
Some borrowers may want to spread their risk over a number of fixed terms. But ultimately, we continue to see the most value in fixing for shorter durations.
Source: ANZ, BNZ, REINZ, RBNZ