Housing investment is falling across New Zealand, with new figures from the Reserve Bank showing a steep decline in the amount borrowed by investors over the last few months. Relative quiet in the investment arena is due to a few different factors, including rises in mortgage interest rates, tighter lending criteria, and tighter LVR restrictions for investment loans. While the Reserve Bank seem satisfied with how borrowing figures have been tracking, they have warned about the possibility of a resurgence of housing pressures.
According to the Reserve Bank, the amount borrowed by investors over August - $1.125 billion - made up just 22 percent of the $5.105 billion total. In contrast, first home buyers accounted for 14.5 percent of the market, a figure that has been consistent over the last few months and remains much higher than it was back in 2016. Investment lending represented 35 percent of the market before the new LVR rules were applied, including a 40 percent deposit requirement for investors that was announced in July 2016. Even though LVR changes weren't introduced officially until October 2016, the banks were invited to follow the 'spirit' of the new rule immediately - and statistics showed that many did.
The 22 percent share of borrowing in August is the lowest percentage for investors since the new restrictions came in, with figures dropping consistently and a clear pattern establishing itself over the past 15 months. Overall borrowing was $6.107 billion in August 2016, of which investors borrowed $1.759 billion or just under 29 percent of the total. The percentage of first home buyers has also increased over this period, from just 10.9 percent in July 2016 to over 12 percent in August 2016 and 14.5 percent in August 2017.
In total, about $1 billion less was borrowed in August this year compared with a year ago, partly due to the recent election. However, even though overall borrowing is at a lower level than it was before the 40 percent deposit rule was introduced, the vast majority of this reduction is due to a lower level of participation from investors. While the $740 million borrowed by first home buyers in August 2017 was down slightly from the $760 million borrowed by this group a year ago, the drop in housing investment means that the percentage of first home buyers continues to increase.
The New Zealand market continues to go through a period of cooling, with average asking prices down from their peak earlier this year and volumes also declining. While Auckland prices rose from $915,325 in August to $943,885 in September, they are still way down from February's peak of $978,652. Most regions followed a similar trend, with a slight increase in the national average asking price of newly listed properties, which increased from $608,315 in August to $619,004 in September, but remained below the February peak of $648,762.
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