Furthermore, the Reserve Bank loosening the LVR restrictions it imposes on banks in December gave banks more leeway to lend to those with small deposits.
From December 1, a quarter of banks’ new mortgage lending to owner-occupiers could go to those with deposits of less than 20%. Prior to this, a fifth of lending could go to this cohort (excluding exemptions to the rules).
While the portion of lending to first-home buyers with small deposits was at a record high in January, the value of this lending had been higher in the past when the property market was hotter.
Sentiment among buyers was the most positive it had been since 2011, according to ASB’s Housing Confidence Survey for the three months to January.
“Those in a position to buy, especially first-home buyers, might be encouraged to act sooner rather than wait, to avoid being priced out, or fence-sitters may re-enter the market,” ASB economists said.
“Even so, it is still early days to confirm that expectations for house price gains have reached a turning point, and whether these expectations will translate into actual transactions.”
Reserve Bank figures show that in January, first-home buyers also took out large loans relative to their incomes.
Of all the new lending to first-home buyers in the month, 11% went to borrowers with debt worth more than six times their income.
This was the largest portion since 2022.
Cotality NZ chief economist Kelvin Davidson said it made sense that as interest rates fell, borrowers could afford to service larger loans.
Indeed, the portion of lending that went to borrowers with low incomes relative to their loans was small when interest rates were high, and large during the pandemic era, when interest rates were at record lows.
The amount of lending done to those with relatively small incomes was so great a few years ago, banks would have breached the debt-to-income (DTI) limits the Reserve Bank subsequently imposed on them.
Davidson said that while more first-home buyers were taking out what the Reserve Bank would deem to be riskier loans, he didn’t believe the situation was terribly concerning – yet, at least.
However, he cautioned that those with larger loans relative to their incomes would be particularly sensitive to interest rate changes.
The Reserve Bank imposes limits on banks’ high LVR and high DTI lending to effectively protect both banks and borrowers from themselves.
While banks’ bad debts have been elevated in recent years due to high interest rates (which have since come down), the sluggish economy, and rising unemployment, the banking system has been fine.
In January, 0.6% of all banks’ housing loans (to first-home buyers, other owner-occupiers and investors) were considered non-performing.
This figure sat at 0.2% pre-pandemic, peaked at 0.7%, and turned a corner in mid-2025. It got as high as 1.2% following the 2008/9 Global Financial Crisis, when banks weren’t as heavily regulated as they are now.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
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