Mortgage borrowing rise to be “short-lived”: Westpac

The lender’s top economists believe the recent rise — highlighted by improved RBNZ data on Friday — won’t last for the long term, due to a raft of government measures designed to cool the housing market.

The economists said a government plan to remove financial incentives for property investors would be the most “important” factor in a subdued market. The government has extended the so-called “bright-line” test for taxing capital gains on home sales from two to five years The economists said they expected the government to close loopholes that allow investors to offset losses on property investments from their tax bills. They added a “broad-based capital gains tax” could also be on the horizon.

Westpac economists also believe the introduction of the government’s Kiwibuild scheme will cool the market. The scheme started construction last week on 18 affordable homes in north Auckland. It expects to produce 30 homes by the end of the year.

Westpac's downbeat views come after some promising figures from the central bank on Friday. RBNZ statistics showed that residential mortgage lending in New Zealand jumped to $5.85bn in March, up from $4.67bn in February. Property investors received $1.3bn in loans in March, up from $1.03bn in February. While buyers already on the property ladder accounted for $3.4bn of home loans, sharply up from $2.8bn in February.

Westpac’s economists also sounded a word of caution about rising household debt in New Zealand. Yet they said the rising problem was “unlikely to topple the economy”.

Overall, household debt has risen by 35% since 2012. The economists said a combination of low interest rates, a strong labour market, and the country’s manageable current account deficit, were indicators of underlying strength.

Household debt in New Zealand is currently equivalent to 168% of annual disposable income. Westpac economists said the rise in household debt over the past five years raised concerns about “an eventual drag on economic activity from increased debt servicing obligations”, but added the ratio of debt to household income has been largely steady since the beginning of 2017.