Activity levels picking up
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 70 responses.
The main themes to come through from the statistical and anecdotal responses include the following.
Activity levels have picked up but bank processing times for applications are increasing again.
More buyers are running into the new DTI constraint.
Competition between lenders is picking up and some fees such as for low equity lending are easing off.
Compared with a month ago, are you seeing more or fewer first home buyers looking for mortgage advice?
A net 49% of the mortgage advisors responding in this month’s survey have reported that they are seeing more first home buyers in the market. This is barely changed from the strong net 52% last month and as the graph here shows, apart from a blip downward in the middle of last year as sentiment on the economy fell sharply, young buyers have had a strong market presence since the start of 2023.
They have been attracted by lack of competition from other buyers such as investors, lower prices, and a good range of stock on offer.
Average NZ house prices currently sit where they were two years ago and four years ago after the initial pandemic surge of 2020. They are ahead about 24% from this time five years ago. Over this period average wages have grown by about 29%.
Comments on bank lending to first home buyers submitted by advisors include the following.
More high LVR lending available, even pre-approvals. Sharper rates and fewer/lower fees for FHBs.
No real changes but appears to be more desire among banks to compete for FHB business with reduced or removed low equity margins/fees and cash-back being offered.
Lower test rates are allowing customers to borrow more on their income. DTIs are starting to impact borrowing amounts
A few more lenders are open to applications over 80% LVR
Compared with a month ago, are you seeing more or fewer investors looking for mortgage advice?
A strong net 46% of brokers in this month’s survey have reported that they are seeing more investors enquiring about property financing. This is a rise from a net 28% last month and as can be seen in the following graph confirms that interest in property buying by investors is firm.
Low interest rates are proving to be an attractive motivator. However, many brokers have noted that more and more investors are coming up against the new DTI (debt to income) rules with banks more firmly enforcing these ratios now. Previously the banks were largely running the numbers but not enforcing the limits much, possibly because the proportion of their lending which is above the seven times income for investors is still quite low.
Comments made by advisors regarding bank lending to investors include the following.
Lower test rates are allowing customers to borrow more on their income. DTIs are starting to impact borrowing amounts.
All lenders pretty much just scaling rental income in debt servicing calculators rather than having to account for the rates and insurance costs as additional costs.
Not much interest from the investors as yields still not making sense. Cashed up investors are still scared to enter the market in case they overpay for the house. Rents are also not increasing.
DTI’s have finally had an impact.
Compared with a month ago, are you finding lenders more or less willing to advance funds?
A net 44% of brokers have reported this month that lenders are becoming more willing to advance funds. This is in line with the net 54% result last month and 33% of December and can be seen in the increasing bouts of rate discounting for fixed terms of three years and less.
What time period are most people looking at fixing their interest rate?
There has been a noticeable shift this month in the time period for which borrowers are preferring to fix their mortgage rate. Last month 68% of brokers said people preferred to fix one year and in December 95% of brokers said this. Now, 54% say one year is the preferred term
At the end of 2024 no brokers said borrowers preferred to fix for two years. One month ago that proportion was 4%. Now it is 43%.
Banks briefly flirted with a discounted three year fixed rate but quickly switched to discounting the two year rate and that is where people are tending to fix now along with the one year term, as shown in the following graph.
This next graph shows the easing off of preference for fixing one year while the one after shows the jump in two year fixed as the preferred term.
The preference for fixing three years remains low.
Are more property owners asking about refinancing?
A net 53% of mortgage brokers in our March survey have reported that they are seeing more people enquiring about refinancing their mortgage. Interest rates have fallen and as borrowers roll off rates above 7% there is keen interest in how much they can reduce their debt servicing burden in the near future.
