Feature article
Shifting tides: lower interest rates begin to fuel a hotter lending market
Drawing on expert analysis from Cotality’s Kelvin Davidson
It’s a topic on every homeowner's and potential buyer's mind: interest rates. For months, we've been watching them fall, and now, we're starting to see the real-world impact on the property market. While the effects have taken some time to filter through, recent data confirms a significant shift in lending activity. To make sense of these trends, we turned to our trusted partner, Kelvin Davidson, Chief Property Economist at Cotality, for his expert analysis.
The Domino Effect of Rate Cuts
Thinking back to the middle of last year, the signals of an easing cycle from the Reserve Bank were already there. As Kelvin notes, the banks were quick to respond. "A fairly typical two-year special mortgage interest rate dropped from more than 6.7% in June last year to 6.5% in July... and it has since fallen to around 5% or less," he explains.
This sustained drop in borrowing costs was always expected to stimulate the market, but as Kelvin points out, it wasn't an overnight fix. The "overhang of property listings" and a "lingering economic soft patch" meant that patience was key. However, the latest figures show that our patience is paying off, with clear signs that lower rates are now driving a noticeable uptick in lending.
Lending Volumes on the Rise
The latest Reserve Bank figures for April paint a compelling picture. A total of $7.6 billion in new mortgage lending (excluding existing loans being rolled over) was issued.
As Kelvin highlights, this is a significant jump. "Measured across house purchases, loan top-ups, and bank switches... [this is] $1.7bn higher than the same month in 2024, and the 10th rise in a row," he says. This consistent growth, seen in 19 of the last 21 months, is a strong indicator of growing confidence among borrowers.
First Home Buyers Seize the Opportunity
First home buyers (FHBs) are proving to be a major force in this evolving market. With the average loan for a FHB in April sitting just under $573,000, it’s clear they are actively taking advantage of the current conditions.
Kelvin points to a crucial factor in their success: low-deposit lending. "There are clear signs that FHBs continue to take advantage of the low deposit lending allowances at the banks," he notes. In fact, FHBs have been the dominant group in this space, with Kelvin stating they "have typically accounted for 75-80% of those flows."
He adds another striking statistic: "Nearly 46% of FHBs in April got their loan with less than a 20% deposit." This demonstrates a significant willingness from banks to lend to this key demographic.
A Clear Shift in Lending Attitudes
Perhaps the most telling sign of the changing environment is the easing of lending criteria across the board. Kelvin points to the overall breakdown of lending by loan-to-value ratio (LVR) and debt-to-income ratio (DTI) as clear evidence.
"The share of lending going to owner-occupiers with a low deposit rose to 14%, the highest figure for about 4½ years," Kelvin observes. While this is still well within the Reserve Bank's 20% "speed limit," the upward trend is undeniable.
Similarly, we're seeing more flexibility for those with higher debt relative to their income. According to Kelvin, "the share of lending going to investors at a high debt to income ratio of greater than seven increased to about 9% (a two-year high), with the figure for first home buyers at a ratio greater than six rose to 6.5%, an 18-month high."
What This Means for You
So, what's the key takeaway for borrowers? Kelvin's message is one of cautious optimism: "money is available."
He elaborates, "Provided of course that the various lending criteria can be met... borrowers don’t always need the 20% deposit to secure a loan. There’s also leeway if the loan is above six or seven in relation to the households’ income too."
This is encouraging news, but it comes with a word of caution. The broader economic climate still plays a crucial role. Kelvin concludes that "employment security is also an important consideration," and some buyers may remain hesitant while the economy is still finding its feet.
In his view, "Until the economy rebounds more strongly and hiring activity picks up, this housing recovery could remain fairly weak."
For now, the signs are positive. Lower interest rates are clearly stimulating lending and creating opportunities, particularly for first home buyers. As always, we'll keep a close watch on the market and continue to bring you the latest insights from Cotality.
Author
Chief Property Economist, Cotality - cotality.com
Kelvin joined Cotality (previously CoreLogic) in March 2018 as Senior Research Analyst, before moving into his current role of Chief Economist. He brings with him a wealth of experience, having spent 15 years working largely in private sector economic consultancies in both New Zealand and the UK.
In his role with Cotality, Kelvin’s focus is on keeping up to date with what’s going on in the property market and continually finding different ways for viewing and interpreting it. Kelvin’s economics background means that he knows his way around a spreadsheet, but more importantly he always puts more emphasis on providing the key insights and telling a story, whether his audience be clients or the media.
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