While those with mortgages now have 6% more debt than a year ago, annual growth in housing debt has eased from a peak of 12% in mid-2021, when constrained housing supply and record-low interest rates contributed to the market overheating.
On aggregate, the picture is stable.
The vast bulk of borrowers are meeting their repayment obligations, there aren’t too many interest-only loans, and the amount of lending banks are providing for those with low incomes relative to their mortgages is comfortably within the limits imposed by the Reserve Bank.
The amount of lending banks are providing to those with small deposits, less than 20% of their loans, rose to 16% in July.
While this was the highest portion since 2013, it remained within the Reserve Bank’s limits.
More affordable houses are also resulting in a decent number of people buying their first homes.
Since mid-2024, first-home buyers have accounted for about 20% of new mortgage approvals – the same portion as investors.
While the mortgage debt picture is less precarious than it has been in the recent past, the figures come as cold comfort to business owners who borrow against their homes, and home owners who bought when prices were red hot in 2021 and 2022 and would now like to exit the market, but can’t sell without suffering a loss.
Matt (whose name the Herald has changed to keep him anonymous) is one of those home owners.
He and his wife believed they did everything by the book – saving and putting down a decent deposit on their first home in Wellington when prices were at their peak. They had FOMO, or fear of missing out, so bought while they felt like they could.
Their jobs then led them to Auckland. However, they couldn’t sell without suffering a loss. They decided to hold on to the property, in the hope the market would recover, only for it to worsen.
The rental market also cooled, all the while council rates and insurance went up.
The rent Matt and his wife receive from their property doesn’t cover their mortgage repayments and expenses. They’ve done the maths and feel like the best they can do is hold on to their property in the hope the market recovers.
Matt is happy it is now easier for other young people to get into their first homes, but can’t help but feel ripped off and disillusioned by the ordeal.
Reserve Bank figures show banks did $109b of new lending in 2021 and 2022 when the market was hot. That’s equivalent to a decent portion of the $397b of mortgage debt currently on issue.
But the Reserve Bank estimates less than 2% of the country’s mortgage debt is in negative equity. In other words, only a tiny portion of borrowers owe the bank more than what their house is worth.
The Reserve Bank deems this portion to be low and not at a level that poses a risk to the stability of the financial system.
It notes people will be in different positions in different parts of the country, given how disparate movements in the market have been.
Loan-to-value ratio restrictions, which require most borrowers to have deposits or equity of at least 20% (or 30% for investors), would have guarded against this figure being higher.
Despite the economy taking a hit after the pandemic, with inflation and interest rates climbing, and now a fuel shock and geopolitical unrest creating uncertainty, those with housing debt have largely been meeting their repayment obligations.
In July, 0.5% of banks’ mortgage debt was deemed non-performing. This was an improvement from the 0.7% peak in 2025, but still a deterioration from the 0.2% level the ratio was at pre-pandemic.
After the Global Financial Crisis ended in 2009, banks’ non-performing loan ratios got as high as 1.2%.
Looking to the November general election, all eyes are on whether Labour will again prevent property investors from deducting all (or some) of their interest as an expense.
Limiting interest deductions has the potential to dent investors’ cashflows, likely impacting them more than Labour’s proposed capital gains tax, which is narrow.
Taking a step back, the big question is, can the New Zealand economy perform well without a hot property market?
People can use the equity in their properties to borrow more to grow their investments. Other asset classes, such as shares, don’t offer the same opportunities to leverage.
Kiwis are also familiar with bricks and mortar. Property is a tangible asset that provides shelter and is arguably easier to understand than the value of shares in offshore technology companies, for example.
However, trading existing property doesn’t enhance productivity or help New Zealand sell more to the world.
The property market slowdown will no doubt come as a sage reminder to those who can, to diversify the way they invest.
The challenge is ensuring the money that would otherwise have been invested in property is invested elsewhere in New Zealand.
COMING UP IN THE SERIES
Monday: NZ debt nears $1 trillion, but borrowing growth has slowed sharply
Tuesday: Is more business debt a sign of growth or a desperate measure to stay afloat?
Thursday: Government debt
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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