ANZ New Zealand will soon be increasing its mortgage serviceability interest rate, the rate it tests mortgage applicants' ability to repay at, to above 8%.
Speaking to interest.co.nz after ANZ NZ posted record annual profit of almost $2.3 billion, CEO Antonia Watson said 57% of the bank's home loan book is still paying interest rates beginning with a two or three. Given the bank's advertised six month, one, two and three year rates are now all well above 6%, chunky increases are ahead for many borrowers when they refix. (See all banks' mortgage rates here).
"The lowest we ever tested people [at] for servicing sensitivity was 5.8%. There are rates higher than that now which I acknowledge. But there are other buffers built into the equation, although we are looking at that cohort that was tested at that rate very carefully," Watson says.
She says the 5.8% test rate was in place for about six months last year, "when people were getting home loans at 2.4%." ANZ's mortgage serviceability test rate was at 5.8% in June last year when interest.co.nz wrote about rates across banks.
It's now at 7.95% and ANZ says it'll be increasing to 8.15% "very shortly."
Despite the rising interest rate environment and high inflation, Watson says ANZ's not noticing many borrowers struggling yet. She says ANZ has seen an average increase in income across its home loan portfolio of 6% over the last year.
"We've still got less people falling behind [repayments] than we had pre-Covid. It is starting to pick up a little bit, but still behind historic averages," Watson says.
"I feel like we are going to see more of it start emerging."
To address this ANZ has established a team to "closely monitor" customers for signs they might be coming under financial pressure, and has bolstered its customer financial wellbeing team.
Nonetheless, Watson says "lots and lots" of customers are ahead on their repayments, with some having built up savings buffers.
"People are still in employment although we might see unemployment increase over coming months. [But] we're in a really good starting position," Watson says.
In its May Monetary Policy Statement the Reserve Bank warned "a noticeable number" of households that borrowed for the first time in 2021 could find it difficult to pay their mortgages and cover all their other usual expenses.
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