Dramatic drop in mortgage demand ‘threatens house prices’

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

The main cause of the 30% drop in consumer loan applications compared to the last three months of 2020 was the Covid-19 lockdown restrictions, said Equifax New Zealand chief executive Angus Luffman.

Demand for home loans fell 35%, and Luffman warned that mortgage demand was a leading indicator of whether house prices would rise, fall or track sideways.

Equifax is the second credit reporting company to release data on falling loan volumes after the release of Centrix data revealing the impact of changes to the Lending Act in December.

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“Credit applications are a leading indicator of housing turnover and price developments, and despite New Zealand house prices rising in the December quarter, the recent reduction in loan demand mortgages could point to lower prices over the next several quarters,” Luffman said.

Demand for loans in the current year looks likely to be subdued thanks to the continuing pandemic, but Luffman said new lending laws, which are meant to protect vulnerable borrowers from unscrupulous lower-tier lenders , should have an impact on lending levels.

“With the threat of an Omicron outbreak in New Zealand, Kiwis should remain cautious about their discretionary purchases in 2022,” Luffman said.

Demand for mortgages is a leading indicator of rising, falling, or holding house prices.


Demand for mortgages is a leading indicator of rising, falling, or holding house prices.

Reserve Bank restrictions on the volume of low-deposit home loans would also impact lending levels, Luffman said.

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

“The extended lockdowns in Auckland have impacted demand, leading to sharp declines in all major retail credit products,” he said.

“The percentage declines are exacerbated by the huge volume of mortgage applications recorded during the December 2020 quarter. Demand peaked during this period, so it is important to consider the equation” , did he declare.

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

Equifax collects data on the number of applications for consumer loans, including credit cards, personal loans and home loans, by tracking credit checks performed by lenders when considering loans to individuals.

Luffman said loan demand held up better in Canterbury compared to the Auckland and Wellington markets. Loan demand in Canterbury is down 21% from the last three months of 2020.

This compared to demand declines of 35 and 36% in Auckland and Wellington.

Luffman said it could reflect people fleeing the North Island for the South Island.

“What we might see is more people looking to move to an area where house prices are more accessible, but job opportunities are still strong,” Luffman said.

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

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

Demand for unsecured loans like <a class=credit cards and personal loans has fallen as households become more cautious.” style=”width:100%;display:inline-block”/>

Keith Srakocic/AP

Demand for unsecured loans like credit cards and personal loans has fallen 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 pandemic first hit in 2020, many people were forced to cancel vacations and that money was being spent elsewhere – whether on domestic travel or home renovations.

“What we’re seeing now is Kiwis becoming more circumspect, 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.