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.
137 Comments
People have had most of this year to refinance. The only people getting new lending will be the high flyers that can still afford it. People are just going to have to lower their first home expectations, hell a FHB couple I know are getting a brand new house built !!!
The Reserve Bank has been considering setting them - https://www.interest.co.nz/personal-finance/115549/rbnz-develop-debt-income-ratio-framework-mortgage-lending-wont-set-banks
It's now at 7.95% and ANZ says it'll be increasing to 8.15% "very shortly."
Yeah right. What they say (and how they measure) is entirely different to what they do. I have no doubt about that. No signatures on the dotted line and it all goes to seed. Glengarry Glenn Ross.
57% of the bank's home loan book is still paying interest rates beginning with a two or three
This perfectly illustrates why it takes time, a long time, for hikes in the OCR to have an effect on lowering inflation, with even more delay for said inflation to be reported. The RBNZ are going to overshoot on the high side but they have little other choice but to hike aggressively for now.
And don't forget - no interest deduction any more for interest. So IRD will consider you heavily in profit and will want their cut (maybe at 39% even). So landlord has to fund the cash loss AND fund the tax despite not making any money!
Good bye residential property market for a while.
If they are relying in rent to cover the increased mortgage payments, some are going to have to hike up rents a lot.
I think many on here have seen this slow train wreak occurring over the last few years, as there were always going to be winners and losers from the rate cuts and money printing due to covid
Ultimately the market sets rent, not landlord’s outgoings.
There’s been a giddy housing market for several years, landlords have enjoyed a climate where they could keep hiking rents because of a bubble mentality and the narrative that there was a housing shortage. Clearly the market and the narrative is changing. It’ll take a while to occur, but its baked in now. Some landlord are simply going to have to sell if they can’t get tenants at a higher rental price.
Does anyone else find it hard to believe the banks claims that there are low levels of people defaulting on their repayment obligations? We have been looking to buy a house (sold our home in Feb) and there has been a recent surge in listing for sale by auction. Why would people try to sell by auction given current clearance rates? I assumed that at least some of these would be people who have been told by the bank to sell or that the bank will do it for them.
That's been working in the last ten years, really well in fact. But by waiting and with the speed of the house prices fall the later bought householders equity is gone and now the bank equity will be getting eaten. The longer the banks wait the worse it's going to be and they will need to up their offsets for defaults big-time.
I understand that there aren't a great deal of actual mortgagee sales happening. They need to be advertised as such. What I'm wondering is why there are seemingly a lot of sales still by way of auction when there is such a low clearance rate in the auction rooms at the moment. Do banks require borrowers to sell by auction when they give them the whole "if you don't sell it, we will" speech?
Well there’s obviously a whole lot of reasons people need to sell, including: divorce, death, illness / old age, job loss /business failure, need to relocate.
plus some may just be feeling too much financial pressure, even if the bank haven’t pushed them to sell.
oh yeah another one - fear that house price falls will accelerate, and better to get out now before the carnage really kicks in…
by HouseMouse | 26th Oct 22, 8:50pm
To be fair the banks do stress test don’t they.
by Nzdan | 27th Oct 22, 6:58am
Yes they do stress test. They also increased the stress test rates recently. Now the carded rates are lapping at what the stress test rates were prior, except they were applied in a 2% CPI environment, not 7%. Oh well, borrower beware and all that.
It was the tail end of a thread from yesterday to do with this comment. Yet coincidentally up go the test rates again.....
Apparently borrowers should know that interest rates couldn't stay low forever. Shouldn't the bank with all their expertise in finances know this? Isn't that why they are rewarded with decent return? For providing an expert service/mitigating risk? Let's blame the 25y/o for not having a finance degree.
Maybe Insurance companies could apply the same logic to electricians. House burns down. "Ohh suuuure, he was registered but sorry home owner you should have been more diligent in which electrician you hired, you know that appliance can't be hooked to a 15amp breaker".
Yes but bank executives are rarely in the job for the long term and earn big bonuses, linked to market share and immediate profits, on the way through. So short term incentives create huge optionality to take imprudent risk and a big principal-agent problem which this time, hopefully, does not fall ultimately on the taxpayer.
RBNZ has at least demanded the banks set aside more capital.
I can't understand why the Reserve Banks didn't require changing the stress testing requirements during that time? Apparently the cheap money was supposed to be targeting towards businesses, yet people instead used that cheap money to buy up houses and cause a house price bubble.
There doesn't seem to be any accountability, and tax payers are essentially carrying the can. Not that I believe anyone should lose their savings if a bank fails, because that shouldn't happen.
Welcome to the corruption that occurs near the end of a long debt cycle. It will likely get even more desperate and corrupt before it gets any better.
And quite possible it will cause even greater domestic social instability as well as international geopolitical instability.
It all boils back to the nation holding reserve currency status having too much debt. And until they are removed from holding reserve currency status, the madness will continue.
Putin appears to be the only leader in the world that understands this - or at least is willing to publicly state this....I don't like Putin, nor what he is doing - but he appears to be the only person that can see what is going on at the macroeconomic level. Those in leadership roles in the west are too conflicted by their own selfish interests to maintain the status quo to resolve the problems we are facing.
I despair reading some of this stuff.
Test rate will increase to 8.15% “very shortly”….well actual interest rates will be shortly too.
Not noticing many borrowers struggling yet….that’s because by your own admission most borrowers’ rates still start with 2 or 3. But they won’t for long and a huge number will be struggling soon.
average increase in income of 6% across loan portfolio over the last year….well that’s guaranteed to make inflation stubborn and therefore interest rates higher for longer, making 8% test as irrelevant soon as the 5.8% test is now.
People are still in employment, we’re in a really good starting position….so was Ireland in 2006 before house prices fell >60%
I feel like we’re going to see more of it start emerging…no s**t. You might be feeling it right. But here’s an idea…get a few better economists onboard who can see the reality sooner and it won’t be, like, you feel maybe things might be about to get slightly worse…. NZ property has been overpriced for more than 10 years, getting worse every year, and the bubble is now absolutely enormous. The circumstances for finally bursting have been obvious for at least a year too. So why have ANZ (and others) missed this so badly, and keep making minor catch up adjustments to price reduction “forecasts” (in reality little more than what’s already actually occurred) when it’s been obvious to anyone taking a longer term global view that the house is about to come down?
Unfortunately there will be great pain for the next few years as a result of allowing this bubble to develop. The upside is that our kids will then get a chance to buy with benefits to stability and community which that brings
So why have ANZ (and others) missed this so badly, and keep making minor catch up adjustments to price reduction “forecasts” (in reality little more than what’s already actually occurred) when it’s been obvious to anyone taking a longer term global view that the house is about to come down?
Because ultimately the banks live to reap profits in short-term as they know the taxpayer is the back-stop when the sh*t hits the fan! They are moral-less and make so much money who cares if the thing goes tits up x years from now…
Democratic governments incentivise financial system to keep the illusion alive as any downturn is bad for re-election
Remortgages being stress tested at these rates is going to make finding refinancing more difficult in the year plus ahead. More pressure on prices as some owners will have forced sales and some buyers won't be able to come to the party. All part of the slow cycle to pressure prices downwards.
Well its slow in that each property transaction is a thing in itself. Its the aggregation of these that make the market so it takes a certain amount of time for the cases to force a change from the equilibrium. The fact that 55% or so of fixed rate mortgages are due to refinance within 12 months presumably means, as you say, this ain't gonna take a long time to come to fruition.
Just as when the house prices go up, one sells at a high price and this lifts the price of the surrounding properties (ludicrous in my view as each property should be valued at it's own merit), when one sells at below market this will impact the surrounding houses prices also. currently in the likes of AKL and WGT you could look at a map of them like looking at petri dishes with bacteria growing out and out in spots, except it is lowering house prices instead.
There could potentially be difficulties in refinancing for borrowers who borrowed 80% in 2021. They would have repaid a small amount of principal by now, but the value of their house reduced by enough to make the refinance above 80% of the value of their house. Will the bank then ask for a higher "low equity loan interest rate", on top of the new, higher rate?
The majority of people who have been borrowing for longer than two years will be fine though.
When a borrower's fixed term matures, the bank can/will look at the borrower's situation before deciding to fix for another term, the bank could then decide, if the security has gone down in value, that the borrowing is over 80% hence the bank could apply a low deposit premium on the already new, much higher interest rate.
Not sure if it’s exactly as was stated in the comment above. But have heard a couple stories now of 2021 FHBs in Wellington having to walk away as they were unable to afford the increase in interest. I assume they lost their deposit selling at 2022 prices as a result.
Trying to decide if you're intentionally making up this scenario to stir up potential brokerage commissions or just being disingenuous.
Banks hold capital and therefore price at valuation in the last credit event. They arent going to apply low deposit premiums on existing loans. I believe a number of them have gone on record with this.
It is happening. Here's a post from yesterday in a broker group on Facebook:
Has anybody ever come across this before please? Clients fixed rate is about to expire (55 days away, so able to lock in now with bank) .. new interest rates not showing up in clients online banking so I emailed the Lender to obtain rates the ‘old way’ – have been told that because the loan was advanced at 90% a year ago, that a new RV would be required to show an updated value before pricing can be issued … I’ve argued the fact that an RV should not be required for a refix and they are saying if RV is not obtained, then loan will revert to floating on expiry with no other options available
ANZ don't care they have just made $2.3b.
If you need to get out get out fast as they will come and take your house and all your saving.
Seen it done with very good friends of mine many times.
They don,t lose the client does they have very little risk on the table.
There is no way ANZ will help you when it all goes bad.
Lot,s of people will lose the lot so they can maintain there inflated billions $$$ profits.
Taking advantage of low mortgage interest rates was like rushing out to gather shellfish when a tsunami pulls the water out prior to the wave.
If 50% or mortgage holders need to refix in the next 12 months at double the rate it's likely to be apocalyptic, sucking billions out of the economy.
That big wave is just over the horizon..
I was often accused of being a spruiker although I considered myself to be just someone that was observing what was actually happening on the ground. I'm okay with house prices going down although I fear there may be significant overshoot and unfortunate consequences.
I figure it is a good way to gauge the sentiment of the market - if you're getting put down by certain commentators and called a DGM, then you know the market was still captured by euphoria and delusion (i.e. they are too busy trying to enrich themselves to rationally see what is happening).
When they start agreeing with you, the market has shifted and could be returning back to normality.
Was much the same in the US during the GFC.
It is like a bellwether.
You know the market is crashing when guys like CWBC and P8 go silent.
Yes and the idea was to have owned part of the beach already so that it became increasingly difficult for new entrants to get access to the beach where the shellfish was to be gathered - simply by being born at the right time and nobody making enough beach space available for younger generations to have the opportunity to gather their own shellfish. And having done this, it was called being financially savvy while talking down to those who didn't have access to the beach.
Perhaps the young people should just sit up on the hills and watch the old people get demolished by the tsunami while they continue to yell at the young people to get their own shellfish collection spot? "I've got mine and I don't care about the welfare of anyone else"
Your comment is just heaving with bigotry, false pride and daft assumptions.
Your comment is a prime example of the thinking that has led to the stupid house cult in NZ. And it is the type of comment that will make people very HAPPY to see house hoarding, overindebted, boastful twits lose their shirts over the next couple of years.
People in the UK are being offered 10% mortgages right now. Chew on that batman.
I think a lot of people are struggling with the idea that what they experienced in their lifetime may not be true for younger generations.
They want to provide useful advice, and they revert to their own experience in order to provide that advice - assuming that their slice of history will repeat - without looking at parts of history that reflect the current period and the possible outcomes of what that may mean.
Most of the comments of the 'get ahead' team assume this is the 1970's or 1980's where house prices are 3x incomes and interest rates have topped out. As opposed to considering that house prices are 10x incomes and interest rates may have bottomed out. Meaning what is coming ahead, could be the 180 opposite of what they experienced in their lifetime.
Back in the good old days where 3x income = house and term deposits = 15% + p.a., but nobody wanted to save 3x income to pay cash for the house. The "memememe" want it now generation who rush out and bought a house at 22 with 2 mortgages and likely vendor finance on top of that.
Meanwhile today 3x income = house deposit, and term deposits = 4%.
Getting ahead apparently means being born at a time when the oldies pay for your job training, oldies' taxes help create a supply of affordable housing etc etc...then to go on and vote for politicians who inflate property values, whilst proclaiming with zero self-awareness to have done it all on one's own two feet. While still expecting to take younger generations' wages for one's pension benefit, of course.
It's sad that getting ahead has for some folk just meant living off the wealth of preceding and succeeding generations.
It would be interesting to know how many people will be impacted. Also what sort of impact it will be. I would have thought a significant number of households suddenly having to come up with a thousand dollars or more a month of mortgage interest will slow down or stop purchases in other areas. A lot of people live close to the edge financially. You occasionally see surveys where it claims a large percentage of people cannot cope with a large unexpected bill. What we will see is a large bill every month for many.
For example if a household had a 400k mortgage at 3.31% currently and it was refixed at 5.99% it would be an extra $900 a month.
Plenty of house hoarders will be holding million dollar +++ debts, over multiple houses.
Unfortunately our reserve bank fails to release the statistics on debt concentration.
We have just gone through a prolonged stage of greed and euphoria, where people were trying to hoard houses like toilet paper... on tick.
What the media, and journalists, fail to recognize is the impact that the house hoarders will be having on market stability. Many of them will be unable to meet their debt obligations, all at once.
Yes you have to wonder about people who have bought many properties. Only the other day I was reading about someone in Australia who wasn't rich who had somehow bought something like ten properties in the last three years. A doubling or more of interest would surely be catastrophic.
This was along the lines of my thinking a few years back....if they are stress testing with mortgage rates above 5% does that mean inflation is not contained and if that is the case, do the banks take into account high rates of other costs that consumers will be experiencing (reducing the ability to service a higher mortgage rate).
Nobody could answer at the time and don't think it has been clarified yet.
I guess that the assumption is made that for inflation to persist outside the 1-3% mandated band, then a wage/price spiral must have occurred - whereby incomes are increasing at a rate that sustains inflation at that higher rate (and allowing most of the increased costs to be covered by higher wages).
Might be a big assumption though.
I tried to answer it for you. It’s taken into account in the sense that the other expenses in the assessment are updated regularly as a minimum in the calculation. Can’t remember the numbers but a single applicant had a minimum of $1900 per month on everything life related, this gets moved up more when inflation is higher.
So my assumption therefore is that the banks assumption (excuse the tautology) is that for mortgage rates to hit the test rate, inflation must be uncontained and wage/price spiral has occurred - whereby wages are rising at or near the rate of consumer inflation (offsetting most, if not all of the rise in the costs that the home buyer is facing, on top of the increased interest rates). If they haven't done this, or this assumption hasn't been considered, then the test rates may be nothing other than a red herring. It may make the central and retail banks feel safe, but provide no real protection from default for those they are lending money to.
Hmm. My rate already starts with a 4, but it'll be that for another 52 months while the floating rate heads to 8 and the lowest fixed rate starts with a 6. Time to up my fortnightly repayments. Oh wait. I can't, as my meagre pay-rise was sucked up by higher cost of living expenses.
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