Looser lending, slower rents, and inflation cool-off ahead
New Zealand’s housing market is shifting ahead of summer, with looser lending rules, soft rental growth, steady construction costs, and fresh inflation data.
Cotality chief economist Kelvin Davidson (pictured) outlines what these changes mean for buyers, investors, and advisers.
LVR rules to loosen from Dec. 1
Under the changes, 25% of owner-occupier lending (up from 20%) can be done with less than a 20% deposit, while 10% of investor loans (up from 5%) can be approved with less than a 30% deposit.
However, the impact may be limited.
“First-home buyers are already strong,” Davidson wrote for OneRoof, noting that only about 12–13% of owner-occupier lending is currently done with less than 20% deposit.
He added, “I’m not sure it means too much for that group, because even the current, lower speed limits aren’t really binding.”
Davidson said the changes could be “more noteworthy” for investors, though “other credit restraints – including debt-to-income caps and bank serviceability testing – mean looser LVRs are unlikely to unleash a fresh surge of investor activity.”
Migration slowdown weighs on rental demand
Weak rental growth continues to challenge investors.
“Rents are currently falling in many of our main centres,” Davidson said, citing MBIE bonds data. The fall reflects both affordability pressures for tenants and a rising supply of available rentals.
Meanwhile, net migration has slowed sharply, with just 10,600 new arrivals in the year to August compared with a long-term average of 31,500. “Slower population growth means weaker rental demand,” the Cotality economist said, reinforcing the cautious outlook for property investors.
Construction costs stay subdued
The sector remains in a slowdown phase, Davidson said, with spare capacity keeping labour and materials costs flat.
He expects improvement ahead: “Things should look better for builders in 2026 with interest rates down and the lending rules still encouraging people to look at new-builds.” While modest increases in costs are likely, Davidson added that “a repeat of the post-COVID spike in building costs is unlikely.”
Inflation hits 3%, but economists say it’s temporary
ASB expects the spike to be short-lived, with “spare capacity and softer domestic conditions” expected to pull inflation back toward the RBNZ’s 2% target next year. The increase was driven largely by food and housing costs, including a 1.8% rise in food prices and 1.4% increase in housing, as council rates and energy prices surged.
ASB’s Mark Smith said the headline figure is “misleading because it’s being inflated by one-off cost increases,” estimating that underlying inflation is actually running closer to 2%.
For mortgage borrowers, the result supports expectations of further official cash rate (OCR) cuts, with ASB forecasting another 25-basis-point reduction in November.
Refinancing trends in focus
Davidson is also watching the Reserve Bank’s September mortgage lending data, due Friday.
“Refi, or bank switching, has been a key focus lately,” he said.
Advisers should monitor whether this trend continued as borrowers chase cashback offers and sharper rates at rival lenders.
Bottom line for advisers
With looser LVRs, easing construction costs, and inflation stabilising, the outlook remains cautiously optimistic. Mortgage advisers should prepare clients for a gradual fall in rates, while keeping an eye on investor sentiment and refinancing activity as the year winds down
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