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Housing Finance Market Overview
In New Zealand, mortgage loans are available to homebuyers mainly from banks though non-bank lenders could increase their market share from 3 per cent in 2000 to 5 per cent in 2007. However, since the financial crisis their market share has fallen below a level of 3 per cent. The ANZ Bank was in 2009 the largest mortgage lender in New Zealand. About 40 per cent of all mortgage transactions were processed through mortgage brokers in 2007.
New Zealandâ€™s mortgage market has expanded rapidly over the past decade. From 2000 to 2007 the ratio of mortgage debt to GDP increased from 56.8 to 87 per cent - an avergage annual growth of 6.5 per cent. The financial crisis has slowed down the growth but did not bring it to a halt. In 2009 the mortgage debt to GDP ratio was 89.9 per cent.
The Market from the Perspective of the Demand Side
The usual loan-to-value (LTV) ratio is 80 per cent though especially in the pre-crisis years loans with a higher LTV ratio were readily available. In 2007 around 28 per cent of all granted loans had an LTV ratio of more than 80 per cent. This level fell to less than 18 per cent in 2009. Loans exceeding an LTV ratio of 80 per cent usually have to carry Lenders Mortgage Insurance. Around 60 per cent of all loans are fixed interest loans - a ratio that remained quite stable in the last decade.
Many of the loans exceeding a LTV ratio of 80 per cent represent loans made under the government guaranteed Welcome Home Loans scheme. This scheme provides lenders mortgage insurance to particiapting lending institutions and therefore helps people with modest incomes (for a couple up to a combined yearly income of 85,000 NZD (before tax)) to get a home loan. Since 1 July 2010 members of a KiwiSaver scheme (programme to support long-term saving for retirement) can either withdraw all or part of their savings to put towards buying a first home or are even eligible for a deposit subsidy (up to a maximum of 5,000 NZD if a a couple has a combined yearly income of 100,000 NZD or less and contributed at least 5 years to the KiwiSaver sheme).
Mortgage interest payments are not tax deductible.
House Price Development
The growth of house prices has been strong. From 2000 to 2007 the annual average growth in prices was almost 11 per cent. Yet, in 2008 the prices fell by 5.6 per cent. In 2009, the house prices were back on a growth trajectory.
Banks' funding mainly emanates from deposits and the issuance of debt. Mortgage backed securities (MBS) are not an important source for refinancing mortgage finance. However, some of the non-bank lenders rely mainly on the capital market and MBS. As the market for MBS closed in 2007, several non-deposit taking non-bank lenders were not able to aquire new business. They lost therefore a lot of market share. MBS did not return before May 2010 on New Zealand's financial market.