Westpac New Zealand CEO Catherine McGrath says home buyers who bought for the long-term at house price peaks in 2020 and 2021 shouldn't be worried about the current value of their property.
In both Westpac NZ's annual results and interim results last year McGrath said falling house prices shouldn't worry recent buyers in it for the long haul.
The NZ median house price peaked at $925,000 in November 2021, according to the Real Estate Institute of New Zealand, and had dropped $150,000, or 16%, to $775,000 in the latest figures, for March this year. The Reserve Bank last week said 25% of new loans stress tested by banks at specific interest rates in 2020-21 are now above those stress test limits.
Since the average bank carded, or advertised, two-year mortgage rate bottomed out at 2.514% in June 2021, it has risen to 6.491%.
Speaking to interest.co.nz after Westpac NZ announced interim net profit after tax was down by a third, McGrath said she would "absolutely" still say falling house prices shouldn't worry home buyers, who bought at price peaks, who are in it for the long haul.
"If you've bought a house and the price [value] of it has gone down and you're looking to refix [your mortgage], we will refix you. There's no penalty or consequences of the fact that your house has fallen lower in value. So if you don't intend to sell it, you're still looked at and considered in the same way as you were at the time that you took the original borrowing out," McGrath says.
"We [recently] led the market with a 5.99% three-year [mortgage] rate. One of the reasons is because it's a rate that we know that even those customers that borrowed at that particular point in time, that that's the rate that we stressed them at and so it's a rate that they should be able to afford."
McGrath says about 93% of Westpac NZ's mortgage portfolio has a loan-to-value ratio below 80%.
"Negative equity's only an issue if within relatively short order you need to sell," McGrath says.
Westpac NZ is "keeping a close eye on" customers who bought around house price peaks and were stress tested at 6%.
"So far everything's looking good. But they're stepping into turning over their fixed rate mortgages now."
She says one-in-three Westpac NZ home loan customers still have "at least one" fixed rate of 4% or less, and 67% of the bank's customers are still ahead on their repayments.
"We're seeing many customers who can be resilient to what's happening at the moment," McGrath says.
She says about 100 basis points of increased cost of borrowing has already flowed through.
"But because of the fixed rate levels that we have in New Zealand, we think there's still about 160 basis points to go, and that won't peak until early next year."
Parent the Westpac Banking Corporation said Westpac NZ's 90+ day mortgage delinquencies were at 0.29% at March this year, up from 0.22% at September last year. Its 30+ day mortgage delinquencies rose to 0.69% from 0.47%.
"In terms of what we're actually seeing today there's only a small number of customers where we can see that strain increasing and it's lower than pre-Covid levels," says McGrath.
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