Mortgage fear: Rising fuel prices ‘making people think twice about more debt’

- Mortgage brokers report a significant drop in new applications as buyers grow nervous about debt.

- Economic uncertainty and cost-of-living pressures are causing potential buyers to hesitate.

- Property sales are down, with a focus shifting to loan restructuring and refinancing opportunities.

Mortgage brokers are noticing a significant drop in new mortgage applications hitting their desks, telling OneRoof that buyers have become increasingly nervous about taking on more debt.

The decline comes amid elevated economic uncertainty driven by the conflict in Iran and rising expectations that the Reserve Bank will lift the Official Cash Rate sooner rather than later.

GV Financial director and financial adviser Gareth Veale said the number of new mortgage pre-approvals he was processing was down 30% year-on-year, adding that those with existing pre-approvals were in no rush to buy.

He said increases in petrol prices and other cost-of-living pressures were “making people think twice about more debt or purchasing a home”.

The shine of looking for a new property also seemed to have worn off, he said. “The people who are looking aren’t really as keen as they were because of the general ill-feeling around the market. They are saying, ‘We might hold off now’.”

Veale said borrowers were more focused on restructuring their loans. “I’m seeing a lot less new purchases and a lot more restructuring and people wanting to take advantage of cashbacks and lower interest rates rather than purchase new property.”

The retreat from the market is evident in the latest figures from the Real Estate Institute of New Zealand. Nationwide property sales in April were down annually (-7.9%) and monthly (-21%). Auckland is bearing the brunt of the slump, with April sales in the city down by 14% year-on-year and 29% month-on-month.

Discover more:

- Tiny town that's a magnet for boomer millions

- Renegade artist's cult home for sale

- 90s All Black star sells his Remuera villa for over $5m

The Reserve Bank’s OCR decision next Wednesday is likely to add to the uncertainty. Most market commentators believe the RBNZ will hold fire and keep the rate at 2.25%, but expectations are growing that it will raise the rate in July.

Loan Market mortgage adviser Dave Williams told OneRoof that the slowdown in mortgage applications could be seen in the number of days major banks were taking to process applications, from around 10 days to three days.

“Banks are pretty hungry to get money out the door. We can kind of judge that with approval timeframes. When they [timeframes] get quite down, which we are getting approvals back really quickly, that says they’ve got a lot of capacity to lend money,” he said.

“I wouldn’t say they are being aggressive with pricing, but they certainly aren’t making it difficult to get approvals.”

Float Mortgages financial adviser Geoff Christopher said much of what the business mortgage brokers were dealing with was centred around refinancing.

Cotality chief economist Kelvin Davidson says signs point to a soft property market for the rest of the year. Photo / Peter Meecham

He urged anyone refinancing their mortgage to shop around, because they could find themselves with some extra cash in their pockets. “Quite often, the best financial advice for a client is to take the cash contribution by switching and trying to keep the banks honest.”

While it was very rare for banks to offer up cashbacks to existing customers, their rivals were more than happy to do it and were dangling offers of around 0.9% and in the case of SBS Bank 1.25%. Some banks such as Kiwi Bank also covered the legal fees involved with shifting to them.

“It’s only a couple of hours to get $5000 or $6000 for your average mortgage size in New Zealand, and when people are feeling the pressure, $5000 for not having to do that much probably sounds alright.”

Cotality chief property economist Kelvin Davidson said a smaller pipeline of mortgage applications pointed to a smaller pipeline of sales.

Davidson said rising interest rates, a softer economy, and falling consumer and business confidence all added to people’s uncertainty. “If you add that all up, conditions are still in the buyers’ favour – or at least those buyers who feel confident about their jobs and feel confident they could withstand a rise in mortgage rates. The ball is still in their court. They can take their time as there’s still a lot of choice.”

- Click here to find properties for sale