Dramatic drop in mortgage demand ‘threatens house prices’

Demand for credit fell sharply in the last three months of last year, credit reporting firm Equifax said.

The main reason for the 30 per cent drop in consumer requests for loans compared to the last three months of 2020 is Covid-19 lockdown restrictions, said Angus Luffman, chief executive of Equifax New Zealand.

Demand for home loans fell 35 percent, and Luffman warned that mortgage demand is a leading indicator of whether house prices are going up, down or flat.

Equifax is the second credit bureau to release data on declining credit volumes, following the release of Centrix data showing the impact of December’s credit law changes.

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“Loan requests are a leading indicator of home sales and price action, and despite the rise in house prices across New Zealand in the December quarter, the recent drop in mortgage demand could portend a slowdown in prices in the coming quarters,” Luffman said.

Demand for lending this year is likely to be subdued thanks to the ongoing pandemic, but Luffman said new lending laws designed to protect vulnerable borrowers from unscrupulous lower-tier lenders are likely to have an impact on lending.

“Given the threat of an omicron outbreak in New Zealand, Kiwis are expected to remain cautious about their discretionary purchases in 2022,” Luffman said.

Demand for mortgages is a leading indicator of whether home prices are going up, down, or flat.


Demand for mortgages is a leading indicator of whether home prices are going up, down, or flat.

The Reserve Bank’s limits on the size of home loans with small deposits would also affect lending, Luffman said.

There has been very high demand for loans in the last three months of 2020, he said.

“Extended lockdowns in Auckland have impacted demand, leading to large declines in all major retail lending products,” he said.

“The percentage declines are compounded by the tremendous volume of home loan requests in the December quarter of 2020. Demand peaked during this period, so it’s important to factor that into the equation,” he said.

Credit reporting agencies such as Equifax and Centrix compile credit reports on individuals, collect data on whether they make their payments on time, and give them credit scores to indicate how risky it would be for banks like banks to lend them money.

Equifax collects data on how many applications are made for consumer credit, including credit cards, personal loans and home loans, by tracking credit checks that lenders perform when they consider lending to individuals.

Luffman said credit demand has held up better in Canterbury compared to the Auckland and Wellington markets. Credit demand in Canterbury fell by 21 per cent compared to the last three months of 2020.

This contrasted with falls in demand of 35 and 36 percent in Auckland and Wellington.

Luffman said that may reflect people fleeing from the North Island to the South Island.

“What we could see is more people looking to relocate to a region where housing prices are cheaper but job opportunities are still good,” Luffman said.

This may have been influenced by people’s increasing ability to work from home.

“The significant changes in the way we work over the past two years may have opened up opportunities in regional areas as well. Based on housing demand, Canterbury leads and, in some cases, allows people to keep their jobs in cities like Auckland and Wellington while living in Canterbury,” Luffman said.

Demand for unsecured loans, such as credit cards and personal loans, has declined as households become more cautious.

Keith Srakocic/AP

Demand for unsecured loans, such as credit cards and personal loans, has declined as households become more cautious.

Demand for unsecured loans, such as personal loans and credit cards, fell more than demand for home loans.

Luffman said: “When the 2020 pandemic first hit, a lot of people had to cancel their vacations and that money went elsewhere – whether it was on domestic travel or renovations.

“What we’re seeing now is that Kiwis are becoming more prudent, paying down debt, being more cautious and focusing on purchases that improve the quality of life at home, whether it’s a renovation, a swimming pool, a boat or a new car. Demand for auto loans has also increased as the supply chain tightens and vehicles appreciate in value.”

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