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Housing debt risk growing - ANZ

Credit and debt risks associated with the hot housing market are becoming problematic, according to a new report from ANZ.

Friday, July 1st 2016, 9:00AM

by The Landlord

The bank’s latest Property Focus is out and it highlights the issue of the debt accumulation necessary to meet rising house prices.

A combination of historically low interest rates, a record shortage of housing stock, and strong immigration mean the housing market is booming nationwide.

ANZ chief economist Cameron Bagrie said across-the-board strength is the only way to describe housing market activity.

“The market is hot. In fact, it is so strong that some of the associated increases in credit and debt accumulation risk becoming problematic.”

One well-reported reason for this is that current house prices are getting increasingly stretched relative to both incomes and rents, particularly in Auckland.

But Bagrie said that housing strength now risks turning into full-blown largesse and much more of a problem.

“There is no doubting the froth and overvaluation in Auckland. Regions are playing catch-up but off a lower base.

“Valuation excesses in themselves need not be problematic. However, we are now seeing clear signs of exuberance via deteriorating structural metrics.”

Alongside this, the report notes that household debt, at 163% of income, is now higher than prior to the GFC, although debt-servicing levels are lower due to lower interest rates.

Bagrie said some of this debt is healthy as it indicates a belief in New Zealand’s economic future.

But extended house prices, rapid debt accumulation and less saving are worrying signs that need to be monitored, he said.

“Another two years of strong credit growth, rapid house price appreciation and debt accumulation would up the ante on a correction in 2018.”

Meanwhile, it is widely thought that the odds of further OCR cuts are growing.

In Bagrie’s view, the direction of the economy, housing and credit growth – as barometers driving medium-term inflation – suggest the low for interest rates has been seen.

Countering this is ongoing low inflation, the high NZD, rising bank funding costs and global wobbles, he said.

“We are siding with the former, but fully expect a macro-prudential policy response towards housing in association.

“Cutting the OCR without having a mechanism to ease the excesses in place risks creating an economic problem down the track.”

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Lender Flt 1yr 2yr 3yr
AIA 5.35 4.49 5.25 5.55
ANZ 5.54 5.15 5.85 6.15
ANZ Blueprint to Build 2.78 - - -
ANZ Special - 4.55 5.25 5.55
ASB Bank 5.35 4.49 5.25 5.55
Avanti Finance 5.45 - - -
Basecorp Finance 6.45 - - -
Bluestone 5.29 7.49 7.59 -
BNZ - Classic - 4.55 5.25 5.45
BNZ - Mortgage One 5.55 - - -
BNZ - Rapid Repay 5.55 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 5.55 5.35 5.94 5.99
BNZ - TotalMoney 5.55 - - -
CFML Loans ▲6.45 - - -
China Construction Bank 5.50 5.40 6.14 6.40
China Construction Bank Special - 4.45 5.19 5.45
Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 4.70 5.20 -
Heartland Bank - Online 4.00 3.85 4.70 4.84
Heretaunga Building Society 5.95 4.80 5.50 -
HSBC Premier 5.49 4.39 5.15 5.39
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.25 ▲4.29 ▲5.09 ▲5.35
Kainga Ora ▲5.43 ▲4.57 ▲5.58 ▲5.85
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 5.00 5.55 6.19 6.39
Kiwibank - Offset 5.00 - - -
Kiwibank Special 5.00 4.55 5.19 5.39
Liberty 4.84 - - -
Nelson Building Society 5.95 4.95 5.85 -
Pepper Essential 3.44 - - -
Resimac 4.59 5.60 6.16 6.29
Lender Flt 1yr 2yr 3yr
SBS Bank 5.29 4.69 5.35 5.49
SBS Bank Special - 4.19 4.85 4.99
Select Home Loans 4.09 4.29 4.86 5.09
The Co-operative Bank - First Home Special - ▲4.19 - -
The Co-operative Bank - Owner Occ 5.45 ▲4.29 5.19 5.45
The Co-operative Bank - Standard 5.45 ▲4.79 5.69 5.95
TSB Bank 5.59 ▼5.14 6.05 6.15
TSB Special 4.79 ▼4.34 5.25 5.35
Unity 5.65 ▲4.80 ▲5.50 -
Wairarapa Building Society 5.24 4.55 5.20 -
Westpac 5.54 5.09 5.79 6.09
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.54 - - -
Westpac Special - 4.49 5.19 5.49
Median 5.45 4.55 5.25 5.52

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