Average home loan drops $25,000 in line with house price falls

Monday, 2 May 2022

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The size of the average New Zealand home loan dropped roughly $25,000 between December and March, according to credit bureau Centrix.

Centrix analytics general manager Stuart Baxter said the reduction, which equated to a 6.8% drop, happened in line with falling house prices.

The amount lent as home loans overall also shrunk by almost a third in March, compared to the same month the year before, meaning less money competing in the market.

“I think the recent dips are showing us that the property market has transitioned into a buyer’s market,” Baxter said.

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“Asking prices have dropped in many regions which tends to happen in a buyer’s market, as conditions favour buyers over sellers in price negotiations.”

The demand for mortgages also fell by 12% year-on-year in April.

Baxter said this, and the 30% fall in overall home loan lending, was down to the market tightening and the lingering impact of Credit Contracts and Consumer Finance Act (CCCFA) changes that had resulted in more borrowers being rejected by lenders.

“Late last year the conversion rate on home loan applications were around 40% – so 40% of them were successful.

“That has now dropped to 34% (in the year to March), which doesn’t sound like a huge drop, but it actually is quite significant.”

In essence, this meant if 100 people applied for a home loan last year, 40 would have received a loan.

Today, only 34 would – meaning six fewer people being approved and therefore competing in the market, which equated to 15% fewer buyers.

Despite the Government now considering changes to the CCCFA to make them less prohibitive for home buyers, banks say the proposed tweaks do not go far enough.

The number of homes on the market currently is above pre-pandemic levels as sales areslower and buyers look around more.

The average mortgage in December was $376,000, which fell to $351,000 in March.

The average size of home loan to first-home buyers this year bucked the trend and went up from $500,000 in December to $531,000 in March.

Baxter said it was not obvious why this increase had occurred, and it could be down to house prices at the lower end of the market holding up better during the market downturn.

He said the average first -ome buyer loan amount did jump around more month to month because they made up only 20% of all loans.

Previously Centrix found 83% of new first-home buyer home loans were taken out at the maximum term of 30 years, which experts say could create inflexibility if borrowers struggle to keep up with payments as they may have less ability to extend terms to reduce monthly costs.

Centrix did find some more promising signs in its April Credit Indicator report. As Omicron restrictions receded, business credit had started to bounce back.

Business credit demand was down 7% year-on-year in April, but the average credit score for new applications was up to 771 – a four-point increase on March 2022.

“While defaults are still up year-on-year in certain sectors like agriculture, tourism and hospitality, the improvement from last month could be signalling a return in business confidence,” Baxter said.

On Sunday Centrix revealed about 400,000 borrowers were behind on at least one payment for a loan following a 5% rise in arrears in the last year.