Mortgage demand drop ‘threatens prices’

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

The primary cause of the 30 per cent drop in consumer inquiries for loans compared to the last three months of 2020 were Covid-19 lockdown restrictions, said Equifax New Zealand’s managing director, Angus Luffman.

Demand for home loans was down by 35 per cent, and Luffman warned that demand for mortgages was a leading indicator for whether house prices would rise, fall or track sideways.

Equifax is the second credit reporting company to release data on plunging volumes of lending following the publication of Centrix data revealing the impact of lending law changes in December.

‘‘Credit inquiries are a lead indicator of housing turnover and price movement ... the recent reduction in mortgage demand may indicate cooling prices in the coming quarters,’’ Luffman said.

Demand for loans in the current year looked likely to be subdued thanks to the continued pandemic. ‘‘With the threat of an Omicron outbreak in New Zealand, Kiwis are expected to remain cautious around their discretionary purchases in 2022,’’ Luffman said.

Reserve Bank restrictions on the volume of low-deposit home lending would also have an impact on lending levels, he said.

There had been very high demand for loans in the last three months of 2020.

‘‘Extended lockdowns in Auckland have impacted demand leading to big declines across all major retail credit products. The percentage falls are exacerbated by the huge volume

Angus Luffman

Equifax NZ’s managing director

of home loan inquiries recorded in the December 2020 quarter. Demand reached fever pitch during this period.’’

Credit reporting companies like Equifax and Centrix compile credit reports on individuals, collecting data on whether they make their payments on time, and giving them credit scores to indicate how risky it would be for the likes of banks to lend money to them.

Equifax gathers data on how many applications there are for consumer loans, including credit cards, personal loans, and home loans, by tracking credit checks done by lenders as they consider whether to make loans to individuals.

Luffman said loan demand held up better in Canterbury compared to the Auckland and Wellington markets. Demand for loans in Canterbury was down 21 per cent on the last three months of 2020, 35 per cent in Auckland and 36 per cent in Wellington.

Luffman said that could reflect people fleeing the North Island for the South Island. ‘‘What we could be seeing is more people looking to relocate to a region where property prices are more accessible, but job opportunities are still strong.’’

This could 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 retain their jobs in cities like Auckland and Wellington, whilst living in Canterbury.’’

Demand for unsecured loans such as personal loans and credit cards fell more than demand for home loans. ‘‘What we’re seeing now is that Kiwis are becoming more circumspect, paying down debt, being more guarded and focusing on purchases that increase quality of life at home ... The demand for auto loans has also increased as the supply chain tightens up and vehicles appreciate.’’

‘‘The recent reduction in mortgage demand may indicate cooling prices in the coming quarters.’’