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Home ownership dreams alive and well

Bank lending suggests home ownership dreams alive and well

Lending by the New Zealand banking and finance sector in the 2003 financial year indicates the New Zealand dream of home ownership is alive and well, KPMG’s annual banking and finance survey reveals.

Releasing the 18th annual Financial Institutions Performance Survey, KPMG’s Banking and Finance Group Chairman, Andrew Dinsdale, said mortgage growth during the 2003 year was spectacular, with lending by the registered bank sector alone increasing by more than $9.7 billion or nearly 14 percent.

“Lending for mortgages over residential property still dominates our analysis of lending. At 51 percent of total lending, it is up from 49 percent in 2002 and consistent with the continuing boom in the real estate market.”

Mr Dinsdale said statistics from the Real Estate Institute of New Zealand indicates that median house prices nation-wide increased by almost 19 percent to $240,500 in the 12 months to March 2004.

“In spite of the fact that rising prices are making first home purchases more difficult, it would appear from the lending statistics that the great Kiwi tradition of owning your own house continues unchecked,” he said.

The survey indicates that of the registered banks, National Bank continues to dominate the home mortgage lending market with a mortgage book totaling $20.5 billion, up more than 11 percent on 2002. The bank holds 25 percent of total home lending in New Zealand.

Strong growth was also recorded by BNZ and ASB Bank, but in percentage terms, Kiwibank, with growth exceeding 1,000 percent, excelled, a reflection of its start-up status.

“The mortgage lending market is arguably the most competitive market in the New Zealand financial services industry, given the number of participants involved. These extend from banks, finance companies and savings institutions to specialist mortgage originators.”

Mr Dinsdale said mortgage growth has been particularly strong in the Auckland area where the property market has been heavily influenced by new immigrants and expatriates returning home. He said there were a number of economic factors adding impetus to the market, among them the earlier low value of the New Zealand dollar, growth in primary sector earnings and low interest rates.

“It is interesting that a number of the indicators listed have taken a turn for the worse during the first quarter of 2004,” he said. “January saw the first increase in the Official Cash Rate for six months and the first net outflow of migrants in six years.

“We are now seeing reports of the property market beginning to flatten. To that extent, there is a note of caution in the wind.”

Mr Dinsdale said the survey recorded further growth in the market for non-conforming mortgages - lending to those outside accepted criteria.

“Today it seems that a poor credit history and uncertain income flows do not necessarily preclude a person from obtaining a mortgage and owning their own home.”

Mr Dinsdale said other significant issues and developments in the banking and finance sector included:

The focal point of the year was the completion of the biggest transaction in New Zealand corporate history - the sale of The National Bank by owners Lloyds TSB Group plc to the ANZ Bank. The transaction means that ownership of all five major banks operating in New Zealand is now held in Australia.

Total assets of registered banks increased a healthy 5.8 percent. Of the five major banks, ASB Bank recorded the highest growth, with an increase in total assets of 13 percent ($3.3 billion).

Net profit for registered banks was down 10.5 percent but the more important measure of underlying performance improved by more than 12 percent, not as good as the 22 percent of 2002, but nevertheless creditable.

Operating expenses for the major banks increased by more than 9 percent, mostly reflecting the one-off costs incurred by National Bank in adopting ANZ’s accounting policies.

After years of steady decline, interest margins rose in 2003 by an average 9 basis points. The interest margin for the sector now sits at 2.65 percent compared to 2.56 percent last year.

State-owned Kiwibank experienced another year of excellent growth, both in terms of customer numbers and lending assets. However, despite the growth, Kiwibank’s lending assets still represent only 1 percent of the overall mortgage market.

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