RBNZ: 40pct of new lending for interest-only mortgages


Forty percent of new mortgage lending is being made to people taking out interest-only mortgages.

The Reserve Bank (RBNZ) has released figures showing that sixty percent of new lending in May 2016 went to people taking loans on principal-and-interest payment terms.

The remaining 40 percent was on interest-only payment terms.

RBNZ says these proportions have been "fairly stable" since July 2015 when the data was first available.

It says interest-only loans are defined as having no scheduled repayments. This includes loans where borrowers independently choose to repay principal such as revolving credit loans which have a fixed limit. These loans tend to convert to principal-and-interest loans after a period of time.

"Only 28 percent of banks' existing stock of mortgages are on interest-only payment terms," it says.

Interest-only loans are less likely to have a loan-to-valuation ratio (LVR) above 80 percent, compared to principal-and-interest loans.

"In May 2016, about 55 percent of new lending for investor purposes was on interest-only terms compared to about 33 percent for owner-occupier purposes," RBNZ says.

"These proportions have been fairly steady over time. Only one percent of interest-only lending for investor purposes is above 80 percent LVR and this has been declining over time."

RBNZ: 40pct of new lending for interest-only mortgages

The figures are a sign of the hot property market.

It indicates that people are looking at the rising property prices and low interest rates, and thinking they should get into the market.

Financial advisers say people need to think about what would happen if they lost their job, or could not get a tenant willing to pay the desired rent, or if interest rates were to go up.

The prospect of higher interest rates might seem unlikely right now. But at some point it will happen.