Housing market slows as lending becomes restrictive

Strict lending rules have led to a continued decline in mortgage conversion rates in Otago and Southland, according to the latest figures.

Data released by lending firm Centrix today revealed that mortgage approvals fell to 34% nationwide in February, while consumer credit fell from 35% to 28%.

In Otago and Southland, combined mortgage conversion rates – the proportion of loan applications successfully converted into new home loans – had fallen to 34% in January from 36% at the end of last year.

That was down from 40% in July last year.

The region’s consumer credit conversion rates had fallen to 33%, also down from 36% in December.

Late last year, the government made changes to the Credit Agreements and Consumer Credit Act (CCCCA), which were intended to crack down on loan sharks, but led banks to scrutinize the personal finances of mortgage applicants.

Trade and Consumer Affairs Minister Dr David Clark ordered a review, due to him mid-last month, to see if the new rules had any unintended consequences.

Centrix chief executive Keith McLaughlin said the rate of decline could be greater than observed because some lenders had chosen to assess affordability before performing a credit check.

The analysis indicated that low-risk applications had been most affected by the CCCFA, he said.

In addition to the CCCFA, higher interest rates and tighter LVR restrictions have combined to slow the housing market.

The value of new residential mortgages had fallen 21% nationally, compared to January 2021.

Despite rising interest rates, mortgage arrears remained low – 1.73% in Otago and 1.51% in Southland – due to the large number of fixed mortgages.

“It is inevitable … that rising rates will eventually put more pressure on households who are also facing rising inflation,” McLaughlin said.

[email protected]

Comments are closed.