Growth in mortgage lending was near zero in May and June, Cotality says, and the lowest in three years.

There was about $5 billion in lending for house purchases in June, $1b in home loan top-ups and about $2b in bank switching.

Cotality chief property economist Kelvin Davidson said housing market activity had picked up in 2024 and 2025 after the very low levels of 2022 and 2023, and was now settling back to a more consistent rhythm.

"We're probably now back to what you'd call a relatively normal level. We've had a couple of years of growth, coming off a low base… once you get back to normality, inevitably growth slows a bit."

He said there was also some caution in the market.

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"We've had mortgage rates snagging a bit higher lately, you've got uncertainty in the economy, the jobs market, that sort of thing. Even though the level of activity in terms of sales and lending is fairly normal, the growth rate has petered out."

Davidson said investors seemed to be hanging back.

"Those who want to take out low-deposit finance may be hitting the speed limit, from an investor perspective. But there are other challenges for investors, too, with rents pretty subdued, costs up and concerns about the election."

Nearly 5 percent of lending to investors in June was done below the 30 percent deposit limit. Banks can lend up to 10 percent of new lending to investors with deposits below that level, but generally restrict it to about half that.

Davidson said interest-only lending was running at its lowest levels in more than a decade, at 14 percent of new loans to owner-occupiers and 28 percent of new loans for investors.

First-home buyers a presence

But he said first-home buyers were active.

They were responsible for 70 percent of all low-deposit lending in June. More than half of all first-home buyer loans are being done with a deposit of less than 20 percent.

"They're pretty keen on low deposit finance and the banks are happy to lend that. So that's a support for them."

Davidson said it was notable that the increase in unemployment was not leading to people getting into trouble with their loans.

Only 0.6 percent of loans are classed as non-performing, either more than 90 days overdue or considered impaired by the bank.

That was about half the level recorded after the global financial crisis.

"The unemployment rate has gone up but it's been more about bigger labour supply than job losses. Not ideal for people coming into the labour force but they're probably not the ones with mortgages.

"The people who have the mortgages in the past four or five years,. they're the ones who have been in employment and have largely kept their jobs."

He said more stringent serviceability testing from banks had also stopped potentially risky loans before they happened.

Cotality said that testing was more of a factor at the moment than the new debt-to-income limits.

Only about 10 percent of lending has been done at high debt-to-income ratios, well below the 20 percent limit.

"In other words, anyone finding they can't get a loan is probably being turned down because of banks' own internal affordability assessments... rather than the official credit rules themselves."

Fixed loans increase

Davidson said that in late 2024, less than 10 percent of new loans were being fixed for more than a year but it had now jumped to more than 50 percent.

"As soon as we got that pretty clear indication from the Reserve Bank at the tail end of last year that they planned to increase interest rates at some point, the cutting cycle was over... people just suddenly switched longer and we saw that share going on terms of longer than 12 months go from 20 percent up to 50 percent and it's pretty much been stable there since."

He said existing borrowers were still shopping around. "Given that 10 percent of loans are floating and 30 percent are fixed but due to reprice within the next six months, there's still quite a bit of flexibility to switch lenders."

He said the switching rate in June was the fourth-highest recorded.

Davidson said recently the stock of outstanding mortgages went above $400 billion for the first time, having only gone above $300b as recently as December 2020.

"Compared with our estimate of the value of NZ's housing stock, almost $1.7 trillion, mortgage debt is low - or 'paper equity' is high. But for the estimated one-third of households that carry all of that debt, the swings and roundabouts of mortgage rates and credit policy are more acute."