Photo: RNZ
Loan-to-value restrictions will ease next month, but one property expert says it is likely to be investors rather than first-home buyers who feel the change.
From 1 December, banks will be allowed to lend up to 25 percent of their lending to owner-occupiers with a deposit or equity of less than 20 percent. That is an increase from 20 percent at the moment.
They will be able to lend 10 percent of new loans to investors with less than 30 percent, compared to 5 percent at present.
In effect, barely any lending has been done to low-deposit investors under the 5 percent rule because banks do not like to push up against their limits. Only 0.5 percent of investor loans had a deposit of less than 30 percent in September.
Cotality NZ chief property economist Kelvin Davidson said the mortgage market had been picking up alongside increased house sales activity.
The total value of outstanding home loans had lifted to $385 billion, up 5.6 percent over the past year.
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He said that was the fastest annual increase since August 2022, when it lifted 5.7 percent.
There has been a high level of switching activity as banks try to tempt customers to move their business in return for cash incentives.
Davidson said owner-occupiers generally seemed to be able to access low-deposit lending when they needed it.
In September, 13 percent of their loans had a deposit of less than 20 percent. A record 51 percent of first-home buyers had managed to get a home loan with less than 20 percent deposit.
Davidson said because of that, the bigger impact for owner-occupiers of the LVR loosening was likely to be an increased availability of preapprovals.
There was limited risk to buyers taking out loans with small deposits at the moment, he said.
"I suppose in the back of your mind, there'd always be that consideration about, well, the less deposit I put in, the more chance I end up underwater at some point if prices are going to fall further.
"But I mean, that risk is probably pretty low at the moment. It does seem like house prices have bottomed out and they might not be rising strongly, but the downside risks are certainly not that significant now with interest rates down, economy looking to turn around, listings have fallen a bit.
"It does feel, if anything, there's upside for house prices. So that will be reassuring for some people. But also, I guess, you'd like to think buying your first house the finances matter, but also hopefully people take into account other things too."
He said people who were planning to stay in a house for seven to 10 years could ride out a price cycle.
"It's about having job security and confidence that you'll keep your income, because that's the thing that's going to be problematic.
"If you go underwater on a loan, it's not necessarily a big issue. But if you stop paying your mortgage, that's the thing. So, yeah, and there's also the fact that, I mean, if people, in some cases, if they want to buy a property, they might just be simply going, well, you know what, I'm going to have to do it without a deposit, because that's the only way I can do it."
He said he had heard stories of first-home buyers hanging on trying to save a 20 percent deposit, not realising they could get a loan below that.
"Looking ahead, the momentum in mortgage lending is likely to continue building. With interest rates easing, housing activity lifting, and policy settings becoming more supportive, conditions are aligning for a further rise in new lending volumes. First home buyers and investors alike are well-positioned to take advantage of the shifting landscape, while lenders prepare for a busier year ahead."
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