By David Hargreaves

With all the discussion around the Reserve Bank's housing loan to value restrictions, one point not highlighted enough is that the tough deposit rules for housing investors since mid-2016 appear to have given first home buyers much more of a chance to buy.

It is unlikely such a scenario was particularly sought or even envisaged by the RBNZ when it announced in July 2016 that housing investors would have to find 40% deposits for house purchases. The figures, however, as highlighted by the excellent lending by borrower type data that the RBNZ has been releasing since August 2014, speak for themselves.

While the tap has been turned off big time in terms of housing investment since the new deposit rule came in, the first home buyers have remained very much in the market and are now claiming a much bigger share of the new mortgages.

Indeed, while the overall amount of mortgage lending has fallen substantially since mid-2016, the dollar amount being borrowed by FHBs has not. In fact the figures show they are now borrowing more than they were in 2015.

A bit of number crunching of the monthly figures to produce annual figures for each of the past three years demonstrates the point:

New mortgage lending by borrower type 2015-17 All borrowers First home buyers Other owner occupiers Housing Investors Year NZDm NZDm NZDm NZDm 2015 68,790 7,214 38,739 22,020 2016 72,256 8,808 41,007 21,641 2017 59,052 8,428 36,320 13,632

(For the full breakdown of monthly figures from August 2014, see table at bottom of this article)

Within these figures as shown above, it's worth breaking down what happened during 2016. In the first half of 2016, there was $36.4 billion of new mortgage money advanced. Of this, a third - just over $12 billion - was advanced to housing investors. The FHBs borrowed a shade over $4 billion, or 11.4% of the total.

By strict definition, the 40% deposit rule came into force on October 1, 2016. However, it was announced on July 19 - and the banks essentially applied the 'spirit' of the new rule from that point on.

Additionally, there were reasonable signs and indications coming from the RBNZ as far back as May that year that perhaps investors might be targeted. There are two sides to that then - maybe there was a rush of investors in the first half of the year to beat what were seen as likely forthcoming restrictions. Or, in the second half investor interest simply just dropped with the onset of the changes.

Whatever, the case, 2016 really was a year of two halves because in the second six months of that year there was $35.8 billion of new mortgage lending, with the investors accounting for only a little more than quarter of that, at $9.5 billion, while the FHBs borrowed $4.6 billion, or just under 13% - which is quite a turnaround from the first half.

The pattern has continued.

The full 2017 year saw the overall amount of new mortgages drop by $13.2 billion. Of this, investors contributed some $8 billion of the fall, while the amount advanced to FHBs dropped by under $400 million. In percentage terms, the amount borrowed by investors dropped 37%, while for FHBs the fall was a bit over 4%.

FHBs up this year

For the first two months of this year the amount borrowed in numerical terms by the FHBs was greater than in the corresponding month of the previous year, while for the investors it was down in January, but very slightly (a few million dollars) higher in February.

In percentage terms, in February, investors accounted for about 22% of total borrowing - well down from highs of around 35% in mid-2016, while the FHBs accounted for over 15.5%.

All of which shows that the calls we saw from many in the real estate industry heading into last year's election for the LVR restrictions to be lifted for first home buyers were misplaced.

Those making the calls were missing the fact that in what is now a much quieter housing market the FHBs have remained as active as they were during the raging market of the recent past. In fact arguably in dollar terms they are more active - when you see that the amount borrowed by FHBs in both 2016 and 2017 was higher than it had been in 2015.

So, the real point that the figures give us, I feel, is that the large-scale pull back of investors is giving FHBs a chance in the market. That probably wasn't an intended consequence of the new rules, but that is what has happened. And certainly in a country like New Zealand that strongly cherishes the idea of the young being able to own their own homes - it would be seen as a virtuous outcome.

What does this all say about the market and trends into the future as the RBNZ mulls possibly further lifting LVR restrictions?

To refresh memories, the RBNZ relaxed the rules from January 1. From then on investors needed 35% deposits, down from 40% previously. In terms of mortgage lending for owner-occupied housing, the restriction on the amount of high LVR lending (above 80% LVR) that banks could do was also slightly relaxed. As of now banks can advance up to 15% of new mortgage lending at high LVRs, up from a previous limit of 15%.

We will probably get a better reading on what, if any difference, these changes have made so far to market patterns when we get the March mortgage figures released in about two weeks' time.

Based on the figures for January and February, however, the amount of FHB activity seems if anything to have lifted a little, while the dial has not been moved in terms of investor activity.

The RBNZ will at the very least make some updated observations about how it is seeing the housing market and the LVRs policy in the next Financial Stability Report to be released on May 30.

It is possible that further relaxation of the LVR policy might be at least signposted.

Relax the rules for everybody?

Logic would suggest therefore a further relaxation in both the investor deposit rule and the overall LVR 'speed limit' rule applied to banks for lending to owner-occupiers.

However, would 'logic' be right?

Is it desirable at this stage to relax the investor rules?

I pose that as a genuine question rather than as a statement because there are always going to be differing views on how desirable or otherwise it is to have large numbers of houses owned by investors.

The RBNZ may see it as desirable that the proportion of bank lending going to investors is dropping. And conversely it could be seen as positive that the numbers of FHBs are as a proportion of the total increasing.

One school of thought would be that in a falling housing market, investors might be tempted to sell - putting further downward pressure on the market, while FHBs would sit tight obviously because that is their home and there's no point in selling it at a loss.

Arguably, the housing market is given greater stability by a bigger proportion of owner occupiers - and therefore the scope for price falls is potentially reduced.

Keep a differential?

So, is there some scope for maintaining a fairly substantial differentiation between investors and owner-occupiers? Therefore should the relatively high deposit limits for investors be retained, at least for now?

Have we accidentally come across one way of giving FHBs a better go in the housing market; not necessarily by making it easier for them as such, but making it more difficult for would-be multiple homeowners?

I think this is an issue that's worthy of fairly deep consideration before the RBNZ makes any more moves to relax the LVR rules.

What do readers think?

New mortgage lending by borrower type monthly figures All borrowers First home buyers Other owner occupiers Housing Investors Month NZDm NZDm NZDm NZDm Aug 2014 4,024 392 2,403 1,167 Sep 2014 4,264 430 2,541 1,226 Oct 2014 4,884 465 2,918 1,421 Nov 2014 5,109 539 2,996 1,499 Dec 2014 5,531 613 3,173 1,666 Jan 2015 3,565 360 2,011 1,146 Feb 2015 4,628 457 2,692 1,418 Mar 2015 6,314 596 3,560 2,073 Apr 2015 5,657 561 3,193 1,841 May 2015 6,162 591 3,520 1,980 Jun 2015 5,745 577 3,229 1,856 Jul 2015 6,010 631 3,310 2,002 Aug 2015 5,940 624 3,251 1,989 Sep 2015 6,500 700 3,490 2,239 Oct 2015 5,853 672 3,385 1,717 Nov 2015 6,415 745 3,654 1,955 Dec 2015 6,001 700 3,444 1,804 Jan 2016 4,117 459 2,338 1,287 Feb 2016 5,166 591 2,855 1,640 Mar 2016 6,572 753 3,589 2,141 Apr 2016 6,504 789 3,464 2,182 May 2016 7,287 833 3,881 2,489 Jun 2016 6,803 738 3,623 2,368 Jul 2016* 6,305 689 3,457 2,095 Aug 2016 6,107 760 3,524 1,759 Sep 2016 5,831 718 3,511 1,530 Oct 2016 5,360 772 3,268 1,265 Nov 2016 6,349 897 3,880 1,506 Dec 2016 5,855 809 3,617 1,379 Jan 2017 3,533 462 2,184 844 Feb 2017 4,379 591 2,720 1,024 Mar 2017 5,985 819 3,655 1,425 Apr 2017 4,558 630 2,738 1,143 May 2017 6,036 849 3,630 1,490 Jun 2017 5,097 713 3,099 1,219 Jul 2017 4,802 699 2,985 1,062 Aug 2017 5,105 740 3,182 1,125 Sep 2017 4,567 658 2,809 1,048 Oct 2017 4,605 722 2,789 1,050 Nov 2017 5,293 778 3,330 1,136 Dec 2017 5,092 767 3,199 1,066 Jan 2018 3,696 564 2,317 783 Feb 2018 4,667 727 2,854 1,038

*The July 2016 figures are highlighted, as this was the month the deposit restrictions for investors were announced and applied 'in spirit' by the banks.