Mortgage lending to investors is down $1.3 billion compared to 2021, a year after the Government announced measures to level the housing market playing field.
The Reserve Bank's latest figures show that mortgage lending was soft again in February, with a total of $5.7 billion, about $1.9 billion less than in 2021.
Investors accounted for most of that drop - $1.3 billion - which, according to CoreLogic's chief property economist Kelvin Davidson, "isn't a surprise given that the past 12 months have seen the landscape change significantly".
In March 2021, the Government announced a suite of housing policies to try and help first-home buyers into the market after house prices increased by 20 percent in one year. It was also revealed that investors made up the biggest share of property buyers.
The policies included the controversial move to end tax deductions on interest costs for rental properties, along with an extension of the brightline test - the tax on property investment - from five to 10 years, but kept at five for new-builds.
Revenue Minister David Parker said in September the tax changes affecting property investors would cost them about $1 billion over the four years they are phased in. There is a 20-year exemption for new-builds.
Prime Minister Jacinda Ardern said the "tax loophole" was "encouraging potentially speculative behaviour", and the Government was helping first home buyers by removing it.
National and ACT warned the tax change would inevitably push up rents. The national median rent climbed 6 percent in 12 months to reach $570 in January, according to Trade Me's Rental Price Index.
But Housing Minister Megan Woods said in Parliament this month there was "no evidence to show that any of the rules around interest deductibility have in any way driven rents increases".
"We are seeing rent increases which are in line with previous periods in the not too distant past, which saw exactly the same rates of rents increases."
The Reserve Bank made it tougher for investors by tightening restrictions on lending in November, with a 2013 measure known as loan-to-value ratio (LVR). LVRs were removed in response to the economic impact of COVID-19 in 2020 and later reinstated in March last year.
Banks are now only able to lend 10 percent of their new lending to owner-occupiers wanting to borrow more than 80 percent of a house's value. For investors, it's at a maximum of 5 percent of new lending to borrow more than 60 percent of a property's value.
The Reserve Bank has also been creeping up interest rates to cool down the housing market - a fire it started after dropping interest rates to record lows to keep money flowing during the COVID-19 pandemic.
Finance Minister Grant Robertson changed the Reserve Bank's remit last year so it must consider house prices when making monetary decisions, along with price stability and maximum sustainable employment.
The official cash rate hit 1 percent last month, up from the historically low 0.25 percent imposed at the start of COVID-19 to stimulate the economy. The hike will cost the average mortgage holder an extra $825 a year, or $16 a week, according to Reserve Bank Governor Adrian Orr.
"There's no escaping the fact that mortgage rates have risen and are set to increase further," CoreLogic's Kelvin Davidson says. "The bottom line is that 2022 will be a softer year for mortgage lending, property sales, and values."
While overall mortgage lending was higher than January's $4.6 billion figure, Davidson notes that the relatively low mortgage lending is a reflection of the housing outlook for 2022: "a lot weaker than 2021".
"In all likelihood, it's going to remain a restricted environment for mortgage activity in the coming months."
The Reserve Bank data shows that lending for first home buyers dropped by $600 million in February compared to the same time in 2021.
Davidson writes: "The figures show that low-deposit FHBs [first home buyers] continued to have a tough time in February, with just 22 percent of all lending to FHBs going out at less than a 20 percent deposit. It wasn't long ago that this figure was more than 40 percent."
Some of the blame for the tight lending market has been pointed at the Government's amendment in December to the Credit Contract and Consumer Finance Act (CCCFA), which required stricter scrutiny of borrowers' financial health to protect people from predatory lending.
Following the CCCFA changes, bank customers have complained about having home loans declined based on spending too much on takeaways and Christmas shopping and ASB Bank said about 7 percent of its customers subsequently missed out on loans.
The Government has since tweaked the changes to "curb any unintended consequences" by clarifying that when borrowers provide a breakdown of their future living expenses, there is no need to also inquire into their living expenses from recent bank transactions.
