Tighter interest-only lending could bite investors pretty hard

PHOTO: Mortgaged investors

For the second month in a row, mortgaged investors’ share of property purchases across NZ hovered at a record high in February, while the share going to first home buyers waned. However, the game is certainly changing for investors. In addition to the reinstated LVRs, it’s looking almost certain to us that restrictions will be imposed on interest-only lending for investors (as well as potentially caps on debt to income ratios). The Australian experience suggests that tighter interest-only standards can have a significant and lasting impact on investor behaviour.

Chart showing the % of property purchased by buyer type — **NZ % of property purchases (Source: CoreLogic)**

The rampant demand from mortgaged investors across NZ’s housing market rolled on in February, with their share of purchases holding steady at a record-high 29% (see the first chart). Once again, the numbers will give comfort to the Reserve Bank that they were on solid ground in making the early move to reinstate the loan to value ratio (LVR) rules, and in particular to raise investor deposits all the way back to 40% from 1st May.

As always tends to be the case, the cash investor/multiple property owner figure has remained more stable in recent months, at around 12% of purchases. It’s important to note that some of these may not necessarily be ‘true’ cash buys – i.e. they could have involved taking on extra debt on other properties in a portfolio. But either way, when you add 12% to the mortgaged 29%, it demonstrates the weight of investors in the market.