More than 24,000 households are likely facing a significant level of mortgage stress, with their mortgage payments increasing by an average of almost $250 a week due to higher interest rates.
While anyone with a mortgage will have been affected by the higher prevailing interest costs of the last few years, the most affected will be those who took out their mortgage between May 2020 and August 2021, when mortgage interest rates dropped below 3%.
Over that period the average of the two year fixed rates offered by the main banks ranged from 2.52% to 2.88%.
That also covers the period from 1 May 2020 to 1 March 2021 when the Reserve Bank removed loan-to-value ratio (LVR) restrictions on mortgage lending.
This was a period of very easy money, and according to the Reserve Bank, 397,564 mortgages were approved between May 2020 and August 2021.
While it’s likely that almost all of these people will have faced significantly increased mortgage payments when they re-fixed their mortgages, those who have faced the biggest challenge will likely be people who purchased their property with a low equity loan with less than a 20% deposit.
According to Reserve Bank figures, 24,244 low equity mortgages were approved between May 2020 and August 2021, with an average value of $490,761.
Of the 24,244 low equity mortgages approved during that period, almost two thirds (65.4%) were to first home buyers.
The average two year fixed rate at the mid-point of that period was 2.58%. On the average mortgage size of $490,761, that would give average mortgage payments of $526 a week.
Increasing the average mortgage rate to 6%, the average two year fixed rate in August this year, would lift the weekly mortgage payments to $769 a week. That means many of those borrowers could be looking at having to find an extra $242 a week to service their mortgage.
Offsetting that, wage growth has also been quite strong over this period, according to Statistics NZ, with median earnings for a couple from wages and salaries rising from $2136 a week in June 2020 to $2540 a week in June 2023, up by $404 a week (pre-tax).
Once tax was taken out of that its likely that most of the growth in earnings would have been eaten up by the higher mortgage payments, leaving higher living costs, covering everything from rates, insurance, food, transport and clothing, to property maintenance and other household expenses, to be squeezed out of the remaining income.
On top of that, the homes of many of those borrowers could be worth less now than they were when they purchased them, potentially pushing them into negative equity.
Between May 2020 and August 2021 the Real Estate Institute of New Zealand’s lower quartile selling price ranged from $446,000 to $619,000. In August this year it was just $577,500, which is well below where it was from March 2021 onwards.
The REINZ’s median price has plotted a similar course, ranging from $620,000 in May 2020 to $850,000 in August 2021. It was only $765,000 in August this year.
Those figures suggest perhaps around of the third of the low equity borrowers during the period when mortgage rates were below 3% could have seen the value of their homes decline from what they were worth when they purchased them.
Although the situation and degree of difficulty individual borrowers are in will vary, it is likely most of the 24,244 low equity borrowers who took out mortgages while interest rates were below 3% are now facing considerable financial stress.
And their numbers may even be higher than that, because the rush of low equity mortgage lending continued for another four months after interest rates began rising above 3%, taking the total number of low equity borrowers who are most at risk to just under 29,000.
And of course that’s almost 29,000 households, not just individuals, who are likely finding things very hard going at the moment.
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71 Comments
160 billion of mortgage debt was fixed at 6 month or less duration as at July 2024. So already on high rates. Likely to be offered at rates 0.5 - 1% lower at next refix opportunity. For the hypothetical 490k average. That's a cashflow boost of 50 - 100 per week. They just have to keep their job.
15 - 30 million a week of spending power very soon returning into the national economy should help with that.
It's still much higher repayment for people who got big mortgages at 2.5% when prices peaked in 2021. You have to consider the ones struggling are not your average mortgage value people, it's the 700k+ mortgage holders. For them, even if fixed rates drop to 4.5%, weekly repayments are still ~$175 higher than they were when they bought their house at 2.5%
Any 1st home buyers in Auckland would have mortgages north of $500k. Interest rates will need to go below 5 for any meaningful relief.
You are forgetting the other part of the equation. Earnings for the median couple from wages and salaries have risen $404 per week. Right now that increased income is going to mortgage servicing in a lot of circumstances. But as interest rates fall it becomes free cashflow or available to service more debt for a better property.
Accumulated inflation since 2021 is almost 20%, it eats up most (if not all) of the salary increase.
Who's fault is that you get a mortgage at 2.5% borrow as much as you can and assume that mortgages won't go up. Its basic math, if you borrow at 2.5% and interest goes up to 5% your interest repayments double. Isn't that the point of capitalism dumb ass decisions get punished. I get it there is a lot of pressure to buy a house, it seemed if you don't buy now then it would only get harder. But if society simply bails them out every time, then there really is no consequence for making stupid decisions, then we will only get more stupid decisions and house prices will continue to rise to even more ridiculous levels until no one can own a house.
I really don't want anybody to suffer, however it seems to me that's the only way for people to actually learn.
Sure blame borrowers. But you'd be wrong to do so.
Why not ask the RBNZ - and the retail banks that parroted the RBNZ - where they said, "Interest rates will stay low for a long time"?
Well spoken, Hootenany.
It’s would be irrational trying to protect people from themselves - and their worst excesses.
TTP
I somehow duplicated my comment 😊
"They just have to keep their job"
Thats the real upcoming problem
Whether you own or rent you still have the same pressure every week/ fortnight/ month those payments are due.
It's not the same if you own or rent. The banks aren't screaming bloody murder if their money-rent payment is a day past due, nor are they threatening eviction if the mortgagee is 14 days late - instead it's extend extend extend.
It reminds me of Jesus' tale of the wicked servant - forgiven a huge debt (over $100M) but then throws his own debtor in jail for .50c! It's the same here - I still remember receiving a text from our landlord about rent being due yesterday (an event we'd notified in advance would be paid the following day) - all while they hadn't changed their mail address and we could see they were months behind in their mortgage payments!
So no, not the same at all.
So you opened the owners mail ? You will find that's against the law in NZ !!!!
It implies the owner was dumb enough to send it to him with additional comment. Not the same.
Great story. Gave me a chuckle.
I remember earlier this year when we rolled over onto a higher rate, we remained on the same fortnightly repayment. The bank had just adjusted our term so that the reduced principal offset the increase in interest. No discussion if we needed it. No permissions granted. They just altered the term. I was shocked they could do that.
They just stopped taking principle payments out of my sons account for his mortgage. No consultation. So suddenly it became interest only.
Protect the ponzi at all costs.
The fact that they where months behind in there mortgage is probably why they where on your case so fast. As a landlord that doesn't rely on my tenants to pay my mortgage, I really don't care if my tenants are late paying the rent as long as they don't start lying about it.
Seriously Hootenany, you should not be a landlord if you do not care whether your tenants pay you or not!
It's not hard to imagine the majority of these 24,000 are those that followed the advice to buy now rather than wait and build bigger interest earning deposits on cheaper houses.
Had they waited, they'd be rewarded with extra fire power (wriggle room) in troubled times.
Imagine buying a $1mi piece of garbage on a 800k mortgage. That gotta hurt!
This comment reeks of Schadenfreude.
The whole property ponzi thrives on Schadenfreude. Don't blame it on me 😉
That's your insecurities talking. The property ponzi, as you put it, thrives on making money, the Schadenfreude comes from those who missed out.
The property ponzi thrives pretending they're making money.
The reality is their annual returns are pretty sad and their maths is so bad they don't even know it.
The term deposit holder is actually the one pretending they are making money... because the other side of the story is that money is becoming more and more worthless each year. The only way to stem that guaranteed loss each year is to buy a real asset like a house.
The person who is sitting on a house that is worth less in real terms also has a mortgage that is worth less in real terms. The people converting the 20% loss on property into a 40% real loss are forgetting that the person who lent to the bank is the one incurring that extra 20% loss, not the homeowner with a mortgage.
Yet Julz, PROPERTY HAS BEEN THE ABSOLUTE WORST INFLATION HEDGE sine 2020. Its collapsed in value in both nominal and REAL terms, while the currency has devalued by 20%.
Look at the real returns on dirt. It really just dirt.
Well property has nearly always appeared overvalued due to money supply always increasing much faster than housing supply.
2020/2021 was an exceptional year of excessive growth which has now reversed, the underlying story hasn't changed. Anchoring on a massive spike in prices to quote poor performance is only the reality for a very small percentage of buyers. The same methodology was used to undermine golds performance after it's huge 1980 spike in prices and it's huge 2011 spike.
Lots of investments have done worse since then by the way including commodities, many equity sectors (other than tech), construction, retail, hospitality, tourism etc..
Gecko...
You're forgetting that you either get to live in it or rent it out.
Average rent in Auckland is about $680 pw X 52 = $$35,360.
Not bad.
Jeez that’s one hell of a Monday morning quarterback comment if ever I’ve seen one mate 🏈🤦🏻♂️😂
Those 24000 mortgage holders, all they have to do is to sell up, give up their day jobs and buy in Riverhead. They will soon make millions in profit. Simple really!
No more 'Riverhead' comments please. That's enough. Move on.
Take heed Wingman! 😆🤣
I've been away from this page for a while - was it Wingman reincarnated from The Man?
No, I think Wingman is unlikely to be reincarnated from THE MAN. The one similarity they do share is they both repeatedly post that they know what they're talking about.
Anyway, we have THE MAN 3 to entertain us now.....
In the longer term, those who own property are almost invariably better off.
As an investment, property holds the popular middle ground....... The sharemarket is too risky for many people. Bank term deposits are safe/secure but get you nowhere in the long term. (The latter are hardly an investment - more a glorified savings account with taxable interest.)
TTP
Listen up people of Japan, it's property!!
"In the longer term, those who own property are almost invariably better off."
Is someone going to tell Elon Musk?
On a statistical note - the mega-rich tend to have but tiny fraction of their wealth in property. And on a more modest rich level - say the top 5% - do likewise.
And on a 'truism note' - what you've just said is akin to saying 'richer people get richer', or 'rich people own houses'. Poor people seldom own anything much at all as they live hand to mouth.
I hate spruiker talk - b'shit truisms abound.
David Shouldn't need to be a forum parent, I would assume a website such as interest would only attract adults.
You'd think so, sadly it's not the case.
Refering to the article, this is a growing problem as the peak of average interest rates hasn't even reached its peak yet (ie still actually going up) as the remaining low fixed rates get rolled onto higher rates. Of course this isn't mentioned by mainstream media.
Those thinking there are going to be house price increases now are incorrect as mortgage interest rates of 6s or even 5s are way higher than the 2s and 3s we were acustomed to plus DTI of 6 will be enough to keep the property market subdued for some time yet
It's not just the peak of rates that are a worry.. It's the peak of the unemployment and recession damage... we have quite a long way to run yet.
I'm no economist but there has to be a more elegant way of reducing the discretionary spending of the NZ population than targeting those with a mortgage (and by repercussion renters I guess) and giving it to the banking sector.
This may be naive but wouldn't we be better off as a nation if mandatory retirement contributions were increased or a similar mechanism. We'd at least be helping to fund internal problems rather than gifting it? I'll prepare myself for the onslaught of smarter folks on interest.
Yes, this would be a much better idea. But not in line with our adherence to free market capitalist assumptions. Mandatory retirement savings would be considered North Korean here. Meanwhile, we all are so content with giving the banks huge amounts of money. It's fine because it's a business and we're choosing to do it. What a load of....
Mortgage debt is provided by bankers (retail) and retirement funds are managed by bankers (investment). Both the options provide bankers huge amounts of money.
I can not believe anyone would post such nonsense.
Oh. You work for a bank?
Don Brashs proposal is to have an adjustable gst rate on fuel to fight inflation. He made it sound really plausible to me.
He was featured in Australia's ABC "Foreign Correspondent" program this week.. A typical boomer and NZ own milder version of Pauline Hanson!
Don't worry. When all cash is digital, it'll just be removed from your compulsory bank account.
Why did the RBNZ lift LVRs in 2020? What a stupid move. At the time almost everyone on this site thought the same thing. They lifted with 1 weeks consultation because removing regulation requires less due diligence than imposing one. Yes, an assumption straight out of the Milton Friedman School of hard knocks. Well, they sure showed us that removing a regulation can have disastrous effects. Meanwhile it took them months and months of consultation to reinstate the LVRs, even though the market was out of control. So much so that banks had to start regulating themselves, ANZ reimposed lending requirements in line with the LVRs before the RBNZ did. That is just insane.
Probably because controlling house prices isn't part of their remit.
Interestingly, considering house prices had been added to their mandate at that point in time by the labour government. Additionally, if it's not in their mandate why do we even have LVRs? It is within their mandate to reduce fiscal risk to our whole system, and letting people borrow and over leverage like idiots creates risk for all of us.
The Reserve Bank noted that the decision to remove LVR restrictions in April 2020 was, amongst other things, to ensure LVR restrictions would not discourage banks from granting mortgage deferrals. Under the mortgage deferral scheme, interest continues to accrue on a loan thereby increasing the LVR of the loan. The Reserve Bank also cited a desire to ensure credit flow and to support the economy.
The banks never said they would do such a thing though. They were (not suprisingly) very quiet on all the RBNZ actions... you can see why as the next few years were mega profit years.
... head down to the Reverse Bank , gang ... bring the tar , feathers , and a few burning torches ... bang on the door , and ask to see Adrian ... he's your man ...
Hold on for a wee bit longer, I am betting on a 1-2% decrease in the OCR by year end. RBNZ is about to go "oh ship, what have we done?" and then blame the government for austerity policies (which doesn't exactly help the situation).
Austerity policies were exactly what we needed to tame inflation instead of insane spending by the last bunch which just prolonged and made the inflation battle worse.. RBNZ should have cotton onto this new approach and been proactive, whereas they've now left it to late and have to be recklessly reactive.
Agree with you though, there's going to be hard and fast reduction in the OCR, 4.00% or 4.25% by year end.
Keep telling yourself that as the economy shrinks more and more and more and debt relative to GDP gets higher and higher...
-10% Dec 2023 to Dec 2024
that would be 7.1% drop over 3 months, its a long shot.
Market climbed into Dec 2023, if you know the data well that would take away 1/2 of the required 7.1%.....
Sorry I don't quite get what you mean.
I'm looking at this chart here
https://www.interest.co.nz/charts/real-estate/median-price-reinz
6.6% from 30 Nov 23 - 30 Nov 24
7.1% from 31 Dec 23 - 31 Dec 24
Quick... import more people.
Welcome to NZ, where the numbers don't work for anything
eg rental or commercial investment, most businesses, Income compared to House ratios, retirement super contributions compared to the actual need (Banking or Dairy farming excluded)
Anyone remember the RBNZ saying i-rates would be low for a considerable number of years when they dropped the OCR to ridiculously low levels?
Funny how so many commentators overlook this extremely relevant fact, ay?
Traffic chaos at Auckland Airport as the new mall opens, and I'm supposed to believe we're on the brink of Great Depression 2.
Yeah, right!!!
https://www.nzherald.co.nz/business/manawa-bay-auckland-airport-mall-ch…
As I said the other day - novelty.
All of the brands there already exist in Auckland. Probably just see spend displaced from Dressmart, which isn’t a high amenity centre…
Pretty sure he said he went for a walk around the other day too. Kinda proves your point
Also an outlet mall, still money out there but only willing to be spent if it is a deal..
Forget about facts and figures, everyone. Wingman says there was a traffic jam! Recession is cancelled.
But most were just desperate to have somewhere to call their own to live in and couldn't see prices coming back again anytime. It's all so easy to sneer at in hindsight. It's disgusting how banks have been allowed to 'bait n switch' so many young people in the way they have. Remember back in 2020/21 everyone being so reassured by lenders that this situation would never be allowed to play out? Sure, it's free will to buy at the price point you like (though when the alternatives are pretty dire, is it much of a choice?), and yes the reserve bank has had to ramp rates unexpectedly fast for a reason, but at any time rules could've been put in place to prevent this all happening to the extremes that is has. And they chose not to.
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