The Reserve Bank of New Zealand (RBNZ) has released its latest Credit Conditions Survey, which provides insights into the current state of the country’s lending market. The survey, which is conducted six-monthly, seeks the views of 15 NZ-registered banks on both reported and expected credit availability and demand.
Improving Trend in Mortgage Lending Demand
The survey revealed an improving trend in mortgage lending demand, with the demand increasing for the first time since 2021. This improvement is attributed to a reduction in interest rates and increased listings, which have translated into higher demand for mortgages. Additionally, some borrowers have shifted loan providers to benefit from falling interest rates.
- Borrowers are seeking to take advantage of the lower interest rates to refinance their existing mortgages or switch to a new lender.
- The increase in mortgage demand is expected to continue for the next six months, driven by further rate cuts and an increase in house sales.
However, the economic conditions and unemployment rate remain dampeners to a full recovery in residential mortgage credit demand.
Consumer Credit Demand Remains Subdued
The survey found that consumer credit demand has not increased, despite the improving trend in mortgage lending demand. Banks had expected consumer credit demand to pick up in the next six months, but this did not materialise. Consumer sentiment has remained subdued, and a broad recovery in the economic environment is required for consumer lending to increase meaningfully.
- Demand for consumer credit declined over the survey period, driven by a decrease in both secured loans and credit card spending.
- Demand for unsecured loans (loans without collateral) has seen an increase in demand in the last six months, which may be used to cover short-term gaps in income or unexpected expenses.
Commercial Property Demand Increases
The survey found a gradual uptick in commercial property demand, albeit from a very low base. Banks expect a much larger increase in demand in the next six months, driven by further cuts in the Official Cash Rate. Lower borrowing costs are expected to enhance investment viability, improve returns on leveraged property investments, and attract both domestic and offshore investors back into the market.
| Reasons for Increased Commercial Property Demand | Expected Impact |
|---|---|
| Lower borrowing costs | Enhance investment viability, improve returns on leveraged property investments, and attract domestic and offshore investors. |
| Improved returns on leveraged property investments | Improve investment viability and attract domestic and offshore investors. |
| Attracting domestic and offshore investors | Improve investment viability and attract domestic and offshore investors. |
Rural Lending Demand Drops
The survey found that demand for agriculture lending decreased significantly over the survey period. Strong commodity prices and favourable production conditions have increased profitability for dairy farmers, reducing the need for working capital financing and liquidity credit. As a result, many dairy operations have been able to repay debt and fund capital expenditure directly from available cash flow.
“The reduction in credit demand in the dairy sector is driven by the increased profitability of dairy farmers, which has reduced their reliance on credit, particularly for seasonal facilities.”
Business Credit Demand Mixed
The survey found that business credit demand was mixed, with demand for capital expenditure loans declining due to high economic uncertainty. However, SMEs and corporates increased borrowing for working capital and lines of liquidity due to ongoing cashflow constraints. On net, business credit demand fell over the last six months due to the subdued economic environment and threat of US tariffs.
