There's no 'jingle mail' in New Zealand and our banks have no appetite to take possession of houses they have loaned money on, Reserve Bank Governor Adrian Orr said.
On Thursday Orr appeared before Parliament's Finance and Expenditure Committee to answer questions about the release a day before of the RBNZ's latest six-monthly Financial Stability Report.
Orr was asked about his comments that mortgage borrowers who may be getting into difficulty as a result of rising interest rates should talk to their banks and asked to amplify just what sort of assistance people should seek.
He said that as part of the initial lending criteria households were put through "a series of what they reported as uncomfortable financial tests".
"So, it’s about the banks working with the people to make sure those plans are still in place, making sure households are making appropriate choices on their discretionary spending with their mortgage rates increasing and to provide, if needed interest rate only loans and if needed mortgage deferrals," Orr said.
"All of these things have been done in the past and are done continuously.
"New Zealand does not have an economic history similar to say the US where they call it, what is it? jingle mail where people just hand their house back to the banks.
"There is no appetite from banks in Aotearoa New Zealand for that to happen. So there are many flexibilities that banks can provide. There are also many [bank] customers.
“So, get in touch with your bank now if you feel that you may be one of those households that need support.”
Asked whether mortgage customers were already in a 'perfect storm' as a result of some mortgage rates now already higher than what the test rates were for customers, Orr noted that the interest rates being referred to were those of today that new customers would be offered.
“There will be a rollover period over the next year or so as people step up on to the higher rates as the mortgage rolls over. So, it’s important to always differentiate between new buyers today and the stock of mortgages that are out there.
"That being said there is a cohort who will be facing higher debt servicing challenges than the banks have stress tested against, but they will need to be talking with the banks around that activity. They are the minority, not the majority."
Orr faced a number of questions about the RBNZ's efforts against inflation and how the bank may or may not have contributed to our 7.2% inflation by the stimulus provided in 2020 during the onset of Covid.
But Orr, who said he was “laser-like focused” on getting inflation down back into the targeted 1% to 3% range deferred answers till the release of the pending five-year review of monetary policy next week and the next Official Cash Rate review on November 23.
However, on inflation, he said: "The shocks still arriving through the global economy are significant and this is where people need to think about their own ability to weather an enormous amount of unanticipated activities.
“Meanwhile around our confidence of having inflation under control – that is very high, because we control the end outcome through the interest rate environment. So, that’s a guessing game. That’s about the things we will have to do to achieve low and stable inflation, subject to the continuing buffering of shocks left right and centre. Resilience and humility."
And on the degree of monetary stimulus in 2020: "Lower interest rates lead to more spending that leads to higher inflation and that was a deliberate strategy and policy in a very, very uncertain period.
"The worse case scenarios did not occur because we stepped in and have done what we’ve done – fiscal/monetary policy and everything else that the people of Aotearoa did.
"We are still here. We still have a strong financial system. But inflation’s too high. And monetary policy was part of that.
“I will repeat, just so you get a sense of the significance of it. For inflation to have been in the 1% to 3% inflation target range at present, we would have had to forecast the impact of Russia’s invasion of Ukraine in 2020 – two years ahead of the actual event. That is the nature of the shocks that are leading to current high headline and CPI inflation in addition to some residual fiscal and monetary policy outcomes."
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In other words, the great unwashed carry the can. Kaumatua Orr dresses it up as benevolence from and guidance of the ruling elite. I'm starting to tire of this fatherly stuff. Remember Jim Jones. Despite all the good work that he seemed to be doing on the surface, things didn't actually end well.
"Resilience and humility."
FFS.
No they did not end well.
Mrs the point wants to know if we will receive a new Scroll by Christmas ?
Well for that to happen another Prophecy needs to be fulfilled .
The Prophet had made it very clear that -30% Crash in Home Prices by December, it's a Certainty !
So the first Area, Region or City that gets to -30% Crash in Home Prices will break the Seal to the Second Scroll. Of course the spruikers will try to claim it should be for the whole country, but some areas go down while others go up making the average absolutely meaningless, but a fantastic tool to deceive the gullible though. This is how the RE Industry claimed the GFC was just a little blip in the radar, when in fact it was devastating . Property drops or increases need to be insular to know what is really going on.
The Real Estate Institute Data shows The North Shore has now Crashed by -28.6%. The date for that article was 12th of October so it is likely we are already there or very close. Rest assured if The Prophet has Prophesied a -30% Crash by December then that is exactly what will happen, ( those results come out in January ). If Mrs the Point or anyone else can get an update from another article from the same source or similar to show the -30% or more then the Seal will break. Beware, the Second Scroll is not inline with the Government Narrative so lets hope and pray The Apprentice does not Vanish before or after the release of the Second Scroll for The Prophet.
Within Auckland, six of the seven territorial authorities had annual price decreases, with the North Shore’s the largest at 28.6% (to $949,000).
Prices were down annually in seven of the region’s eight territorial authorities, but South Wairarapa’s dropped the most with a 27.5% fall (to $700,000).
What I find most annoying is he spends all his time justifying the past mistakes, without acknowledging what we could have learned from them. I think most sensible people understand it is a tough job, with imperfect information and we were going through fairly unprecedented scenario. What I'd at least like to see is an honest discussion of, in hindsight, that they may have gotten wrong. What have they learned? What mistakes will they avoid in future?
But no, nothing, just pathetic ass covering of "Oh its not our fault, no one could have seen this coming. Its all [Putin's/China's/supply chains] fault".
No one is correct 100% of the time, but if you can't acknowledge and recognise your mistakes you will just repeat them ... and unfortunately the rest of us have to pay for those mistakes.
I agree, to show true leadership is to show humility and although he may not have gotten it right, he could at least admit that there could have been more done then move forward, perhaps then the public may see him more of a human than a virtue-signaling fool. Ardern, Orr and Robertson show the opposite of humility and self-promote in a time when we want to see hard decisions made as the representatives of the people that elected them, the country needs accountability and strong leadership, not rushed legislation and excuses.
Yes,sh*t is going to get really serious,for tens of thousands,of often young people,who recently over stretched,over paid,on their precious first home. Having sacrificed maybe a decade of scrimping & saving, and that effort and equity is possibly gone already.
Life changing disaster.
Real consequences.
Predicted and Avoidable.
But not avoidable now.
For inflation to have been in the 1% to 3% inflation target range at present, we would have had to forecast the impact of Russia’s invasion of Ukraine in 2020 – two years ahead of the actual event.
Except a huge component of the latest CPI figure was domestic inflation, so this can't be true.
Also, consider that they began raising interest rates in September last year in response to persistently high inflation that they has dismissed as transitory beginning in late 2020 when it first started ticking up.
Blaming the war is just misdirection for their own failings.
Forget Russia, best to concentrate on things we know. Jay Powell comment:
''Risk management is key here: if we were to overtighten, we could use our tools to support the economy later on; but if we failed to tighten enough, inflation would become entrenched and that would be a much bigger problem''. Wow - the risk is not to tighten enough. Link
Exactly. Also, the assertion that reopening migration channels should bring inflation down is false.
Non-tradeable inflation remained at the top end of RBNZ's target range between 2016 and 2019. This period coincided with annual net migration, mostly made up of working-age individuals, running well above 1% of NZ population.
Tradables, non-tradables and all groups CPI were all running above the 3% annual rate by June 2021, six months before there was any talk of activity on the Russia -Ukraine front. And by December 2021 high rates for 2022 were already baked in with the December 2021 annual rates for tradables, non-tradables and all groups CPI running at 6.9%. 5.3% and 5.9% respectively.
So the data clearly refutes the RBNZ Governor.
Compound inflation as measured since the start of 2020 through to September 2022 has been 13.6%, with lots more in the pipeline
KeithW
Given that two face Tim the "Property Broker" has about faced and started slamming resident "Doom Goblins" who advise/advised FHB's to wait, what concrete financial solutions does he offer this couple (free of charge) that he would have helped into their negative equity without batting an eyelid?
https://www.stuff.co.nz/business/130353910/no-money-in-negative-equity-…
RP (aka Crash Crusader)
It really depends on where the 'missing' Inflation ended up.
It may not have been in the Wages and CPI indicators for the last 15 years, but it sure was in asset prices; hiding in plain sight.
And that is where the rebalancing will come from.
Wage Inflation is dangerous. It prompts employers to look at their weekly wages bill and the cost of their inputs, and the first ting to go will be jobs.
So what are we heading into? Higher Unemployment and Falling Asset Prices.
I think that face is for the supplicants prostrating themselves before Kaumatua Orr, pleading that he drop rates and put food back in their children's mouths. It's a still shot, so we can't see it, but she is shaking her head slowly as she considers how pathetic they are.
Monetary Policy is for the rich.
"New Zealand does not have an economic history similar to say the US where they call it, what is is jingle mail where people just hand their house back to the banks.
"There is no appetite from banks in Aotearoa New Zealand for that to happen.
Of course they don't want that. Why should they take any risk on their Investment
There really is no end to the pathetic clowns that run our country.
Orr can spare us the desperate rhetoric about the war, nobody buys it, it is an input yes, but it's not an excuse.
If you are over-leveraged, seriously consider whether you want to continue carrying the can for an industry desperate to exploit you at the expense of your financial future.
To those families duped, it might well be worth salvaging what you can and buying back later.
This is not a typical cycle.
Nigelh, that was my thought. He is signalling to the banks but also borrowers that they have to tough it out. Take mortgage holidays, go interest free etc.
Of course, all that makes the property they have purchased, which is now depreciating in value, even more expensive but one assumes no one is going to do any actual maths.
This "mortgage holiday" bollox is is big part of what got us into this mess in the first place!
When covid hit, and the RBNZ bent over backwards to prop up the market... mortgage holidays, lvr removal, etc... it was all just a massive moral hazard... they moved the goal posts, tilted the playing field.... and juiced average Kiwis up with the idea that the market would ALWAYS be propped up....
So people went hollis bollis into more bloody debt. House prices shot up, and the moral hazard reading went off the Richter scale.
The RBNZ should not be pushing bloody mortgage holidays. They keep moving the fecking goal posts, driving us deeper and deeper into moral hazard, and getting their fat little fingers into areas where they DON'T belong! It is not the RBNZ's job to prop up house prices. Mortgage holidays are none of their bloody business, and they should never have been pushing them in the first place.
Imagine how much better off NZ would be, if the RBNZ had of just let natural market forces do their thing when covid hit. We would have a much smaller bubble to deal with now.
I am convinced that RBNZ is corrupt. They are in the pockets of their banking mates, and fiddling around with markets that they have no bloody business fiddling around with.
It is all just layer upon layer of moral hazard.
We NEED creative destruction. Capitalism dosen't work without it. The last thing we need is a whole bloody generation of mortgage debt zombies, just scraping by with lifelong IO loans and "holidays". What a miserable fecking situation the RBNZ is setting up for working kiwis. And that is why I say that they are corrupt... their every move is aimed at making more profits for their banking mates, and sucking Kiwis into longer and longer lifetimes of DEBT.
And all they are doing is sucking more people into more debt, strengthening the hold that banks have over people's lives, and causing more carnage when the whole thing eventually implodes.
I think we know now that the only 'financial stability' they're interested in is that of retail lenders. Given they are now saying that thousands of Kiwis need to lose their jobs in order for things to normalise, it's time we stopped kidding ourselves about what the remits from the MPC mean. A prolonged recession where thousands of young Kiwi households face negative equity and being trapped in mortgage debt is not 'stability' because it's offset by a cohort of older Kiwis who made huge tax-free gains on property and then got to cash out and live the life of Riley.
Yes my theory at the moment is that raising interest rates in this environment is going to encourage the price/wage spiral as businesses pass on increased debt costs to customers, who in turn request higher wages to pay for the essential goods and serivces they need, which results in even higher wage expenses for all businesses, which results in them charging even higher prices for all of their goods and services to increase revenue above expenses - and so on and so forth. I think this is what we have been seeing for the last 12 months and what we may see for the next 12 months until something breaks.
Handing the keys back to the bank won't let you off the mortgage debt in NZ. You will still owe the bank the outstanding after any sale proceeds & ultimately be bankrupted if you don't pay.
If the RBNZ & Govt (both Labour & National) cared about this at all then NZ would have non recourse mortgages as USA (also can be 30 years at a fixed interest rate). Bank having their own skin in the mortgage risk management might then tend NZ property prices to be nearer the USD375k average.
What a complete load of Bullocks Mr Orr you are forgetting 1 main thing you created this by doubling NZ debt in less than 6 months and blame it on a virus. Bring it on I say keep increasing the same old OCR and just as history states it will shit itself. Just have to look back 25 years of the OCR .
I remember the advice my Mother in law received from our local real estate agents in early 2021. "Don't worry about the price, it will be worth more next year. Just offer the most the bank will lend you as it is the only way to secure the property in a hot market." Fortunately, she ignored them. House prices spiralled due to easy money and a collective mantra that houses only go one way in NZ. The sad thing is that none of the spruikers will be punished and the people who suffer will be those that were conned by the vested interest groups. Anyone who encouraged caution was shot down as a DGM. The doom and gloom is now beginning for many home owners.
Has Russia’s invasion of Ukraine really had much impact on NZ's economy. I doubt it.
Lower interest rates lead to more spending that leads to higher inflation and that was a deliberate strategy and policy
Lower interest rates lead to more borrowing. It was the height of foolishness to encourage more borrowing during a pandemic. Lock downs led to less spending on small things and more borrowing to buy property.
So there are many flexibilities that banks can provide... get in touch with your bank now if you feel that you may be one of those households that need support.
Ah yes banks, a great source of support for those in financial trouble.
He speaks in generalities like "many flexibilities", because when it comes down to it, there aren't any that result in the bank not making bank, or keeping a mortgaged house without paying for it.
As someone who hasn't really had much dealings with banks in the past I am curious - what help and support can/do they actually provide? In better times I understand that banks 'support' is usually in the form of more lending. I doubt they are keen to double down on a bad mortgage though. I imagine the most they can offer is some kind of payment holiday (ultimately resulting in more interest paid), an extension of term, or generalised 'budgeting advice.'
When this mess really gets traction, who will loose first? - will It be the 25 years of savings from hard work and cautious expendature, or will it be those who took on far to much debt either knowingly or unknowingly?
Having watched affordability vanish into the distance for years, we have great hope of purchasing a big enough home to house our young family, though I fear we will be thrown under the bus in the guise of "it is what it is"
Great times.
We're still in our first house, looking to move to a decent size family home in the next 12 months as the narrative becomes clearer. Will happily live on boiled cabbage and noodles for a proper family home, having watched the people who took on reckless levels of debt to buy huge houses manage to mint themselves and then cash-in. Infuriating? Maybe. But there's going to be some who want to rush to the exit and there may be opportunities there from distressed developers with new stock they can't shift or urgent sellers. It may actually be our best shot at getting a decent house in a good area.
Fingers crossed for both of us.
Being ahead on a mortgage when the underlying asset is worth less than what you've paid for it means nothing. Being $100 a month ahead of minimum on a 30 year mortgage with a short fixed rate period (like we have in NZ compared to other countries) means nothing.
As usual, stats on tell the story of the numbers they measure. Using them to infer anything broader isn't how statistics works.
Well my point is , when the numbers getting tighter and tougher , masters will come up with easing and accommodative measures, to save the slaves..
We just need 'significant number of people' complaining or some 'significant people ' complaining about house prices or mortgage payments
the goal is to keep inflation under control 1-3% inflation pa,,,, they didn't give a stuff when RES Property was flying higher YOY and even lowered rates adding fuel to the housing inflation since the GFC .. we purchased a home in 2016 at present sales values its gone up on average 23% per year !!! and they lowered rates YOY to keep it all afloat ... but looks like now from all the damaged caused by RBNZ loose policy and GOVT free money spend up on thousands of working groups and consultants .. its time to stomp on anyone with Debt.. crash the market ASAP .. new smackdown agenda = exporting even more kiwis overseas to AUS etc
There's no jingle mail in NZ because borrowers can't just send the keys back and forget about the mortgage like they can in the US.
Here the banks make money if you can pay your mortgage, probably make more money if you can't make your payments by putting penalty fees or low capital premiums on and will still make money out of the unsecured loan you need to cover the liquidation costs if you end up truly underwater. Although, I am sure they will give you some sort of assistance, maybe 2% of unsecured loan rates so they can say they are helping out.
Then, on the other side, if too many people go under and the banking system looks shaky they can just lock depositors money in.
So yeah the banks are fine, I'm sure.
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