Housing boom: Renters will feel the pain too, BNZ boss warns

It’s not just aspiring first home buyers that will find it tougher to get on the ladder amid the booming housing market, the chief executive of BNZ has warned.

Speaking after the bank released its full year results yesterday Angela Mentis, said there were unintended consequences of a very strong housing market.

“Really it is around the impacts to affordability. As prices go up it is going to be harder for first home buyers and we also know as housing prices go up rents increase as well so that is an unintended consequence.”

Like other banks Mentis said BNZ saw a record month for home lending in October and it was seeing that boost consumer confidence.

“People feel confident when their house prices are going up and there is equity in their house and they are more confident to spend and invest and we are seeing that.

“And we are also seeing many first home buyers who are in the market and buying and that might be a little bit of fear of missing out in a rising market and we have seen the investors come back into the market.”

But Mentis wouldn’t be drawn on whether the Reserve Bank should bring back lending restrictions at its next financial stability review on November 25.

“We have been really prudent in our approach and our levels over the 80 per cent lending [threshold] are still more conservative than they were pre-Covid.

“I think the Reserve Bank has got many options which they need to consider of which the loan to value ratio will be one of those.”

Despite a challenging year which saw the BNZ’s net profit after tax fall $260 million $762m for the year to September 30 Mentis remains upbeat.

“When I look at the economy I am really pleased it is showing that remarkable resilience and we are optimistic.”

She pointed to the latest unemployment figures out on Wednesday which showed the rate had risen to 5.3 per cent – well below the 6 per cent the bank was expecting.

“We have actually brought down where we think it is going to peak at 7.4 per cent and even that might come in lower.”

Mentis said the economy hadn’t felt the full force of the tourist shortfall yet which would happen over the peak of Summer.

“So that $9b gap hasn’t been felt through. We are still seeing that travel and airline and education are struggling and not back where they were pre-Covid.”

But Mentis said she believed the shape of the economy would be different than pre-Covid times with many businesses moving to digitise their offering during the lockdowns.

“I really believe it will be the SME [small medium enterprise] business led growth that will be what drives New Zealand.”

She said New Zealand also needed to leverage and benefit from its Covid-free status.

“There will be industries who want to come to New Zealand because of our Covid-free status. And our primary producers have never been more confident around being that primary lever to power the growth of NZ and we are really seeing that in our record terms of trade.”

The bank has put aside $300 million for credit impairments.

Peter MacGillivray, BNZ chief financial officer, said around 58 per cent was forward looking.

That is lower than the 75 to 80 per cent of forward provisioning that ANZ and Westpac have announced over the last week.

But MacGillivray said he was comfortable with the level of provisioning the BNZ had taken.

“We feel we are well provided and very strong for whatever uncertainty there is in the future.”

BNZ gave more than $6b in home loan support and $4b in business lending support during its 2020 financial year helping around 30,000 customers.

Mentis said over 70 per cent of mortgage and business customers had now gone back to pre-Covid terms and conditions.

It still has around 4700 customers on loan deferrals about 3 per cent of its loan book.

Mentis said it was not expecting to anticipating a deterioration in the numbers on deferral.

“[We] have been talking to those who we think might be under more stress and at this stage we are not seeing an increase in anything unusual moving into hardship those numbers are quite small at this stage.

“But that doesn’t mean that things can’t change there is still some bumpiness ahead but at this stage we are quite pleased that our customers are recovering back to principle and interest.”

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