Housing market slows as lending becomes restrictive

Tight lending rules have caused mortgage conversion rates to continue to drop in Otago and Southland, latest figures show.

Data released from credit company Centrix today found that mortgage approvals had fallen to 34% nationally in February, while consumer finance had fallen from 35% to 28%.

In Otago and Southland’s mortgage conversion combined rates — the proportion of loan applications successfully converted into new home loans — had dropped to 34% in January compared with 36% at the end of last year.

That was down from 40% in July last year.

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

Late last year, the Government brought in changes to the Credit Contracts and Consumer Finance Act (CCCFA), which were intended to clamp down on loan sharks, but have caused banks to closely vet mortgage applicants’ personal finances.

Minister of Commerce and Consumer Affairs Dr David Clark ordered a review, which was due back to him during the middle of last month, to see if the new rules were having unintended consequences.

Centrix’s managing director Keith McLaughlin said the decline rate might be bigger than what was being seen because some lenders had opted to assess affordability before running a credit check.

Analysis indicated that low risk applications had been most impacted by the CCCFA, he said.

As well as the CCCFA, higher interest rates and tighter LVR restrictions were combining to slow the housing market down.

The value of new residential mortgage lending had fallen 21% nationally, when 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 place increased pressure on households who are also facing rising inflation," Mr McLaughlin said.


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