The combination of record-low mortgage interest rates and removal of LVR restrictions have caused mortgage lending to skyrocket to record levels.
New Reserve Bank mortgage lending figures show Kiwi homeowners borrowed $7.3 billion in September, up 32.8 percent compared to the same time last year.
The figures show the amount of borrowing based on loan-to-valuation ratio (LVR) restrictions: the percentage of borrowing compared to property value. In May, the Reserve Bank removed LVR restrictions for 12 months, effectively allowing banks to lend more money to those with deposits less than 20 percent of the property value, including first home buyers and investors.
Since May, loans over 80 percent (LVR above 80 percent), have increased 53.2 percent, from $515 million to $789 million. Loans to investors (LVR above 70 percent) more than tripled, increasing from $361 million to $1.1 billion.
Kiwibank chief economist Jarrod Kerr said the combination of removal of LVR restrictions and record-low mortgage have helped first-home buyers. Confidence in the market and potential gains from house price rises have attracted more investors.
"We have a housing market that's off to the races on steroids at the moment," Kerr said.
"Even the most cautious investors are starting to think: 'I could get 3, 4, 5 percent rental yield' and comparing that to a 1 percent term deposit rate at the bank, that decision is becoming easier."
In addition to introducing the bank funding for lending programme in November, driving mortgage rates even lower, Kerr expects the Reserve Bank to bring LVR restrictions back in next year. This will reduce the number of low deposit borrowers.
"Next year, I think we'll find that the LVR restrictions come back on to ensure the quality of lending that is being done is of a certain standard," Kerr added.
John Bolton, chief executive at mortgage broker firm Squirrel also expects the Reserve Bank to bring LVR restrictions back in. In his view, this is likely to reduce investor activity but won't have much effect on first-home buyers.
"That would help to slow down the property investor part of the market," Bolton said.
"For first-home buyers, the amount of lending above 80 percent is still broadly within the limit set by the Reserve Bank," Bolton added.
Although figures show lending to borrowers with lower deposits has increased, bank lending standards haven't loosened.
"Although it's a really big lending number and it would be easy to say bank standards are dropping, the reality is banks are still quite conservative with their credit policy," Bolton said.
He says the huge increase in lending is largely driven by "upgraders" - people who have repaid some of their mortgage and want to take advantage of low interest rates to buy something better.
"What we're seeing in this market is upgraders coming back into the market saying 'I went through COVID, I want a better house...they're back and they're back strong."
"In a very low rate environment, people are borrowing more money and prepared to pay more for the same house...hence house prices are going up," Bolton added.
