Caution returns to the mortgage market
Each month we invite mortgage advisors around the country to give insights into developments in the residential real estate market from their unique perspective. Our latest survey has attracted 52 responses.
The main themes to come through from the statistical and anecdotal responses include the following.
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There is some more interest being shown by investors in property buying.
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Banks are becoming less willing to lend to young buyers with less than a 20% deposit, possibly because of concerns about their application processing times already being too long.
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Increased preference is being shown for slightly longer rate fixing terms following the latest round of interest rate reductions.
Compared with a month ago, are you seeing more or fewer first home buyers looking for mortgage advice?
Our monthly survey of mortgage advisors around the country has shown that a net 15% are seeing more first home buyers looking for advice. This is a rise from just 4% in last month’s survey but still well below levels earlier this year.
Looking at the graph and the data we can see that the pace of entry into the market by new buyers eased off in April despite continuing declines in interest rates. Clearly, there are factors in play other than just financing costs and credit availability weighing on buyers at the moment – such as employment concerns and possibly worries about the global economic environment.
Comments on bank lending to first home buyers submitted by advisors include the following.
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Haven’t had any trouble from lenders with first home buyers. Even managed with a non Kainga Ora home loan with 5% deposit with no questions.
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Existing debts and overtime policy are being looked at closely.
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First home buyers ok with 10% deposit. Kainga Ora increased LEP for First Home Loan Product, and now pricing unattractive compared to bank pricing. Now only suitable if deposit between 5-10%. Some lenders requiring higher monthly income surplus for high LVR lending. Debt Servicing test rates have fallen in line with OCR reductions.
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Tougher with banks now telling us they are pushing their over 80% LVR limits. Wonder if its more about their inability to manage their lending queues.
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Less and less lending available for first home buyers outside their own bank or KO. Servicing requirements for lending over 80% is also tightening again with several banks.
Compared with a month ago, are you seeing more or fewer investors looking for mortgage advice?
As is the case for first time buyers there has been a slight recovery this month in the proportion of brokers saying that they are seeing more investors in the market. That proportion has risen to a net 10% positive from 5% last month and just 2% in April.
But as the graph here clearly shows, the surge in investor interest following commencement of the monetary policy easing cycle in August last year has essentially now ended.
Comments made by advisors regarding bank lending to investors include the following.
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Seeing a few investors and the majority have a cash deposit or strong equity to support the application. Many investors are seeking cashflow positive properties so the timeline from pre-approval to purchase is longer for this reason.
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Slight reduction in stress test rates. A little more relaxation around the need to include rates and insurance for rental properties.
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Super slow assessment times and additional questions on exit plans by some lenders if lend takes purchaser well past retirement age.
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Lenders seem fairly bullish about investors which is a pleasant change from a year or more ago.
Compared with a month ago, are you finding lenders more or less willing to advance funds?
A net 13% of brokers this month have reported that they feel lenders are becoming more willing to advance funds. This is the same as the result in our May survey but again well down from results earlier this year.
Mortgage advisors strongly report that banks are taking too long to process mortgage applications. That might help explain why competition between lenders is still not much manifesting as discounting of lending rates.
At the same time this might explain some of the decreased willingness to lend to those with less than a 20% deposit.
Nevertheless, overall, there is still a trend in place of improving access to housing credit.
What time period are most people looking at fixing their interest rate?
There is a bias on the part of borrowers towards fixing their mortgage interest rate for only a short period of time. 38% of brokers say that people prefer the one year term, 27% say 18 months, and 23% two years. Only 8% of brokers say borrowers are opting for fixing three years.
The first following graph shows this month’s distribution of rate preferences and the graph immediately after shows where those preferences stood last month. Note the main shift is from two years to 18 months.
Last month: 
This graph shows the changes in the proportion of agents saying people prefer fixing one year.
This next graph shows how interest in fixing two years has just eased off.
Very few people show a preference for fixing three years.
Are more property owners asking about refinancing?
A net 29% of mortgage advisors report that they are seeing more people looking for advice on refinancing their loan. This proportion has remained relatively high since the start of 2023 when the “recovery” in the housing market started.
