How are bank home loan volumes tracking?

Data reflective of conditions, says New Zealand Banking Association head

How are bank home loan volumes tracking?

The number of new home loans issued by the retail banks has dropped over the last six months, while the average value of existing and new home loans has increased, according to the latest data.

A Retail Banking report released by the New Zealand Banking Association in October, which covers the six months to June 2023, shows there were 40,438 new home loans over the period, down by 11.4% (from 45,628) compared to the six months to December 2022.

The number of home loans as at the end of June reached almost 1.25 million, held across 1.08 million customers. The total average value of all existing home loans for the six months was $323,463 (up 2.4%) and the total average value of all new home loans was $382,913 (up 2.6%).

New Zealand Banking Association chief executive Roger Beaumont (pictured above) told NZ Adviser that the drop in the number of new home loans was a likely reflection of the state of the housing market and wider economic conditions during the first half of 2023.

“Property values and sales generally dropped following their Covid peak, and that’s likely what we’re seeing here,” he said.

According to the report, the overall value of all new home loans opened was $15.5 billion (down 9.1%).

Of the 40,238 new home loans, 26% were issued to first home buyers, the average value sitting at $546,176 (up 11.1%).

Increase in customers behind on repayments

Data showed that 43.7% of home loan customers were ahead on their repayments (down from 44.7%), while 1.4% were behind (up 0.17%).

Noting that a significantly higher percentage of customers were ahead on their repayments than behind, Beaumont said that the data showed that many people with home loans were managing “relatively well”.

“It means those paying more than their minimum repayments likely built in a cushion in case their circumstances change.  It also means they’re paying off their debt faster,” he said.

Steep rise in hardship applications   

Across all banking customers, 9,080 applied for hardship status, up 84.9% compared to the prior reporting period. Hardship status was granted to 5,655 customers over the period (up 31.9%).

Fixed rates remain preferred option for borrowers

Data showed that fixed rates continued to be the preferred option for borrowers, representing 61.5% of all home loans, while those on variable rates only represented 17% of all home loans (up 2.3%).

The 21.5% of remaining home loans were a mix of fixed and variable rates. 

The number of home loans switching from principal and interest to interest-only was 11,090 (down 8.5%).

Beaumont noted that over 65% of people with a credit card were paying off debt without incurring any interest, showing a “high level of financial capability” among credit card holders.

Contrary to when interest rates were at a historic low, savers were now responding to rising interest rates and people were now investing more in term deposits, he said.

Average interest rates on term deposits increased from 3.19% to 4.9% over the six months to June, while average interest rates on savings accounts increased from 2.42% to 3.59%.

“The value of term deposits increased by 8.1% to $154 billion, with an average balance of $107,900,” Beaumont said.

Summing up the data, Beaumont acknowledged that cost of living increases had hit many households hard.  Borrowers were also affected by a sharp rise in the cost of borrowing from historic lows, driven by global conditions and the Reserve Bank’s efforts to rein in inflation by raising the official cash rate.

He acknowledged the increase in customers granted hardship assistance by their bank and urged borrowers experiencing financial difficulty to contact their bank as soon as possible.

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