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Lending growth will slow – S&P

Recent increases in mortgage rates are set to continue, but this will help ease the risks house price inflation poses to New Zealand banks, Standard & Poors says.

Thursday, April 6th 2017, 12:43PM

by Miriam Bell

Risks stemming from rising house prices and household debt levels are expected to stabilise in 2017, according to the global ratings agency’s latest outlook for New Zealand’s banking sector.

This is because New Zealand’s credit cycle is maturing and both credit growth and house price growth are now expected to slow.

Standard & Poors financial institutions ratings assistant director Andrew Mayes said the key driver for slower credit growth will be funding costs – which have already contributed to a rise in mortgage rates.

“Increased funding requirements can be absorbed by further mortgage repricing which we expect in 2017. Or by slower lending growth. We think a combination of the two is likely in 2017.”

In turn, slower lending growth will contribute to slower house price growth, he said.

“But we don’t think house prices will fall. They will slow, but not fall.

“That’s because there is a supply deficit and that is likely to continue for some time due to ongoing high migration, a tightening up in property development funding and construction industry constraints.

“For this reason, house prices remain a downside risk for New Zealand’s banks.”

Standard & Poors believe that macro-prudential measures introduced by the Reserve Bank have taken some heat out of the market.

The resulting stabilisation will be helped along further by the upwards repricing of mortgages, even though mortgage rates remain low.

But Mayes said that there are still some worrying elements including a high amount of interest-only loans, household debt and the ongoing rise in house price multiples which will continue spilling out from Auckland. 

“There are limits to what the Reserve Bank’s influence is in this regard, especially from a migration perspective.

“Basically, the macro-prudential measures have had some effect but it has been a limited effect and largely on the areas they are designed to impact on.”

The introduction of debt to income ratios (DTIs) would impact on credit growth, he added.

“But we don’t see it coming this year due to the election. If DTIs are introduced, they would go some way towards addressing issues of stretched serviceability and would withdraw funds from the market.”

Overall, Standard & Poors assessed New Zealand’s banking system as low risk and forecast banks performance to remain strong.

But Standard & Poors financial institutions ratings director Nico de Lange said a downside scenario for the banks could occur if credit growth and or house prices increase rather than slowing down.

Read more:

Migration driver powers on

DTIs cost benefit analysis ordered 

Tags: banks Lending Macro Prudential Tools Mortgage Rates mortgages RBNZ Reserve Bank S&P

« Risk based pricing for Co-op Bank personal loansBroker concerns referred to FMA »

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.15 4.09 4.49
ANZ Special - 3.65 3.59 3.99
ASB Bank 5.20 4.15 4.09 4.39
ASB Bank Special - 3.65 3.59 3.89
BNZ - Classic - 3.65 ▼3.54 3.99
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
Housing NZ Corp 5.19 ▼4.15 ▼4.09 ▼4.39
HSBC Premier 5.24 3.35 3.35 3.35
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 5.65 3.85 3.95 3.89
Kiwibank 5.80 4.30 4.34 4.74
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.55 3.59 3.99
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.69 4.79 -
Resimac 5.30 4.86 4.14 4.19
Lender Flt 1yr 2yr 3yr
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.69 3.69 3.99
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.65 3.59 3.99
The Co-operative Bank - Standard 5.15 4.15 4.09 4.49
TSB Bank 6.09 4.65 4.59 4.85
TSB Special 5.29 3.85 3.79 4.05
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.34 - - -
Westpac Special - 3.65 3.59 3.99
Median 5.35 4.15 4.09 4.19

Last updated: 16 September 2019 10:03am

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