How much are landlords borrowing to buy investment properties?

Landlords’ investment property appetite didn’t change much towards the end of last year, with them still accounting for around 17 per cent of all borrowing.

Reserve Bank data showed investors had a slightly stronger appetite for property,borrowing $1.3 billion in October but that rising to $1.53b in November.

But their activity is staying relatively level and their share of buying remains significant.

Landlords or investors accounted for 16.9 per cent of all new mortgage commitments in New Zealand in November, almost level-pegging with October’s 17 per cent.

All new mortgage commitments by all types of borrowers were $9.1b in November, up $1.4b or 18 per cent from October last year.

Some glimmers of hope are shining through for a category of buyer the Government has been trying hard to encourage.

First-home buyers borrowed $1.7b in November, up $286.5m from the previous month and up 8.3 per cent from last year.

New mortgage commitments to other owner-occupiers were up from $4.9b in October to $5.7b in November, and rose 6.5 per cent annually.’

Kelvin Davidson, CoreLogic chief property economist, noted the trend in different buyer categories and said landlords were finding lending restrictions tougher.

“It’s still practically impossible for an investor to get a low deposit loan unless buying a new-build of course,” he said in a commentary on the Reserve Bank data this week.

He sees three key trends.

“First, the overall lending figure was still strong at $9.1b, a little lower than the same month in 2020 of $9.3b but still the fourth-highest monthly total on record,” he said.

The strength of lending was driven by owner-occupiers – first-home buyers and other types. Investors generally are on a steady downwards trend.

“Clearly, that will be reflecting the 40 per cent deposit requirement, tougher tax rules, and probably also the changing economics, with property yields now quite low and costs rising, especially mortgage rates,” he said.

Second, and of more interest, was the breakdown of the lending figures by loan to value ratio. This data measured what borrowers wanting more than 80 per cent LVR got and showed$640m went to first-home buyers, only $177m to investors and $824m to all borrower types.

Third, there were signs first-home buyers were behind the overall easing in owner-occupier high LVR lending in November. High LVR lending as a share of the first-home buyer total in November dropped fairly sharply, from 42.5 per cent in October to 36.8 per cent in November. That was the lowest figure since April, Davidson said.

From November 1, only 10 per cent of banks’ lending can be to owner-occupiers with a deposit or equity of less than 20 per cent. That was a move expected to hit first-home buyers hard.

Banks had been allowed to do up to 20 per cent of new lending to owner-occupiers with a loan to value ratio over 80 per cent.

In March 2021, $10.4b was borrowed – the most of any month last year.

The November 1 LVR restrictions came after the Reserve Bank undertook consultation following concerns that house prices remained unsustainable and the risks of a housing market correction.

Geoff Bascand, Reserve Bank deputy governor and general manager for financial stability, said in announcing the move that restricting high-risk lending was right.

“We launched our consultation after observing that despite previous adjustments to LVR restrictions, house prices remained unsustainable and the risks of a housing market correction had continued to rise, increasing risks to economic and financial stability.

“Restricting high-risk lending will help prevent these problems getting worse.”

Andrew King, Property Investors Federation chief, is worried about rising mortgage rates and landlords losing mortgage interest tax deductibility.

He says there is a rental property shortage in New Zealand and believes that will only get worse due to the lending restrictions, interest rates rising, losing the tax breaks and the law change from last February.

“It has been really stressful for me over the past few years. It was so obvious that renting in New Zealand, for both providers and tenants, was going to get worse because of these measures yet we could not get that message through the anti-landlord sentiment.

“This has led to people not becoming rental property providers and tenants finding it difficult to find suitable rental accommodation with rental prices being higher than they should be,” King said today.

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