By David Hargreaves
Housing investors remain for now relatively sidelined, while first home buyers continue to enjoy the extra space being given to them in the market place, new Reserve Bank figures for August indicate.
The figures show that in the past month the amount borrowed by investors, at $1.125 billion, made up just 22% of the $5.105 billion total borrowed. FHBs accounted for 14.5% – and the FHB figures have remained pretty consistent, while those for investors have slumped.
The August figures of of some particular interest because it is now over a year since the introduction of tougher lending requirements for investors.
On July 19, 2016 the Reserve Bank announced new 40% deposit requirements for investors.
While technically this rule didn’t come into force till October 2016 the banks were invited to follow the ‘spirit’ of the new rule immediately – and the statistics show they did.
In other words from July 2016 and then more particularly August 2016 onward the monthly borrowing figures measured an impact from the new rules. So now we are a year on from that and year-on-year comparisons therefore now can be made on, if you will, a like-for-like basis.
Going back to June 2016 the monthly borrowing figures showed that there was a total of $6.803 billion advanced in mortgages for house purchases. Of this, investors borrowed $2.368 billion, representing a tick under 35% of the total. Investors had been tending to get a bigger and bigger share of the amount borrowed in the build up to the announcement by the RBNZ of the new rules.
First home buyers, on the other hand, had appeared to be getting squeezed out of the market.
In June 2016, for example, as a group the FHBs borrowed $738 million, which made up just 10.8% of the total.
In July 2016, the month in which announcement of the new deposit rules for investors was made, there was a total of $6.305 billion borrowed. Of this, the investors’ share shrank to a little over 33% ($2.095 billion), while the FHBs share edged up to 10.9% ($689 million).
By August 2016 the pattern was becoming clearer, with $6.107 billion borrowed, of which investors borrowed $1.759 billion – under 29% of the total. FHBs borrowed $760 million that month – which represented well over 12% of the total.
So, move on a year and this pattern has very much continued.
Borrowing in total is generally at lower levels than before the 40% deposit rule for investors was introduced. But the vast majority of the reduction is stemming from the much lower levels of participation by investors.
The 22% share of borrowing in August is in fact the lowest percentage for investors since the 40% deposit rule came in.
The FHB group in the meantime have recorded figures mostly similar to before the investors’ rule came in – and therefore have been enjoying a much bigger share of the total in percentage terms.
The $740 million borrowed by FHBs in August was down slightly on the $760 million borrowed by this group in August 2016, but in the latest month FHB borrowing accounted for 14.5% of the total, against a little under 12.5% a year ago.
In total about $1 billion less was borrowed in August this year compared with a year ago as the country moved into the shadow of the election. The September figures could therefore be expected to be similarly constrained.
The Reserve Bank has expressed satisfaction with how the borrowing figures have been tracking, but has kept warning about the possibility of a resurgence of housing pressures.
While the 40% deposit rule has clearly had an impact, other factors have been at play including some rises in mortgage interest rates and tighter lending criteria being employed by the banks.