ANZ, New Zealand's biggest home lender, is increasing the interest rate it uses to test whether borrowers will be able to continue making loan repayments if interest rates rise significantly.
ANZ is increasing what it calls its Servicing Sensitivity Rate to 7.15% from 6.7%.
"We now apply 7.15% as our Servicing Sensitivity Rate when assessing affordability, to take into account that interest rates can move over the term of a loan," an ANZ spokeswoman told interest.co.nz.
"Our Servicing Sensitivity Rate is regularly reviewed in line with the changing interest rate environment. This means when interest rates rise, we are likely to increase the Servicing Sensitivity Rate to help ensure we have a sufficient buffer in our affordability assessments so that customers can continue to afford their home loan repayments despite rates rising."
ANZ had outstanding home loans of almost $99 billion as of December 31.
Just last week interest.co.nz reported ANZ's test rate was at 6.7% and ASB's at 6.85%. ASB is NZ's second biggest mortgage lender. BNZ, Westpac and Kiwibank wouldn't specify where their test rates were set.
Also last week the Reserve Bank said it's keeping the option of it setting the interest rate banks use to test borrowers' ability to cope with rising interest rates on ice for now.
The Reserve Bank's latest Financial Stability Report, due out on Wednesday, will provide an update on where banking sector-wide test rates are at. The Reserve Bank started systematically capturing this data in 2018.
Banks' mortgage rates have risen significantly over recent months with inflation also rising and the Official Cash Rate now up to 1.50% having been just 0.25% as recently as October last year.
71 Comments
Too low IMHO
It is but they can't increase to a safe rate lets say 2 bps above inflation, or no one will be able to borrow and will crash the (market) quicker.
If you believe a quarter of whats being written about "the great reset", that more than likely exactly what they are doing.
... also , the Reverse Bank is way out of kilter ... the OCR ought to be far far above where it currently sits ... they should lead the way , the commercial banks Orrt to follow them ...
Hum - you are correct but eventually the market will decide, neither Orr or Robberson will have any influence, both think they are signal men and pulling levers ensures the train follows the line of their choosing but they don't know - yet - the levers are disconnect and the NZ Train is headed for the buffers of inflation or stagnation and serious social disruption I hope at election time sees Labour return to Parliament in a mini bus and Greens/Maori left standing at the bus stop.
A clear signal of more to come. Those that have hung on to 2-3% rates expiring this year, blinded by greed thinking prices would hold up and rates would hold down, will increasingly wish they had broken earlier this year and refixed long.
I’m still with HouseMouse that rates are likely to go back down next year or so as the current rate increases cause a recession which inhibits wage inflation, or if imported inflation decreases due to supply chain improvements, no covid, or a resolution to Russia Ukraine. But there are no guarantees of anything
I’m still with HouseMouse that rates are likely to go back down next year or so as the current rate increases cause a recession which inhibits wage inflation, or if imported inflation decreases due to supply chain improvements, no covid, or a resolution to Russia Ukraine. But there are no guarantees of anything
My hypothesis is that rates will possibly go down before the mid-term elections in the U.S. That will put all kinds of pressure on NZ.
But to be honest, I think NZ's far more screwed than other countries being at the end of the world and with low market scale. Inflation will linger longer and hit harder.
Don't want to go all DGM, but it's good to consider these things so you can position yourself accordingly.
I agree, we're more screwed.
we can't afford to raise rates because of our ridiculous mortgage debt...
but can't afford not to raise rates because of our pissant economy
whoops
NZD still tumbling lost 7% in April if rates are reduced before told by FED NZD will lose another 20% putting inflation sky high you and HM may hope but it will not happen.
I can’t speak for HM but I’m not really that concerned either way, I’m just stating what I think is most likely. I also said I could easily be wrong.
I doubt the Fed will need to raise rates by much either TBH.
And where is HM? Haven’t seen a comment from him all day. Time to cal 111?
Have no fear, HM is here! Frantic day. Usually I don't have to work *too* hard, but today was one of those exceptions!
I'm not worried at all. Of course, as a mortgage holder I would certainly prefer mortgage rates to be lower than higher, who wouldn't!
But as I think I've said before, I will need to re-mortgage in late November, by then I would have paid off a couple of loans, if mortgage rates are say 6% at that point I'll only be slightly worse, net, than I am right now. And my position right now is fairly comfortable, financially.
However, as I've said before and as Jimbo says above, I stand by my long held view that the OCR will be cut, potentially significantly, in 2023. So I'll look to float from November, and then look to fix again when rates fall in 2023.
Where I've admitted I will almost certainly be wrong is how high the OCR peaks, before it starts to be cut.
I don't agree HM. Rates will be very fast to go up but very slow to drop. My partner fixed for only 3 years when I said go for 5 years, she has already done about 9 months of the 3 years and it will be up before she knows it. If you have forces in play like inflation, there is no choice but to keep rates high. We are potentially looking at medium term rates where people here said it was "impossible" and "could never happen", well its happening and its looking at the moment like the sky is the limit.
You think rates can or will stay high when the nasty recession hits? I don’t
“I’m still with HouseMouse that rates are likely to go back down next year…..”
Plus people will spend large on overseas travel instead of doing up their houses or buy that new sofa, things will slow down significantly domestically. Again feel bad for business owners, let’s hope international visitors will make up for some of it.
Wow thats a lot of interest, last time I saw that type of interest rate, 500k of mortgage was necessary for a Ponsonby villa, ie about 2006/7 now u need north 1mil with a 50% deposit......
and how many now have a million dollar mortgage or mortgages due to the low rates , we have a problem now with the reserve bank to blame for letting rates go to low for to long and not putting other hard measures in place to protect people, and as an aside i do not believe they should protect anyone that takes on to much debt BUT they created the conditions for this to happen
I totally agree - the Reserve Bank didn't turn off the cheap money tap soon enough
Not only did they not put in place measures to protect people...what measures already in place they removed while pumping money into the market.
Those who warned "be quick" were right, as now some buyers won't be able to enter the market... right?
Well actually, a $600K mortgage tested at the 6.7% rate was $3782 per month
If you take on the 7.15% servicability test rate, you can get a $560K mortgage that matches $3782
So simply offer $40K less.
(unless of course the market is plateauing, not sliding into the sea like Wellington houses)
Who's this going to hurt most? FHBs. Forget CCCFA, this is something no one can avoid in their application...
Only hurts the FHBs silly enough to buy now. Much better to wait.
On Thursday the Fed is going to reinstate their credibility by being super hawkish leading to further stock market falls as intended and with further flow on effects on property markets. Our property market falls are just getting started.
Funny how our housing market appears strongly, positively, correlated to the highly speculative US sharemarket...and yet I've been told by many property investors they won't touch shares because they are too risky...
And yet people take highly leveraged positions on an asset that appears correlated to another highly risky, leverage asset class.
Jesse - So FHBs should just continue to put their life on hold, pay higher rents, have savings dimished by inflation and be locked out with high test rates? You know who's going to be snapping up these homes in difficult times right...
Many have had their life on hold for years anyway so what's another year or two. Need to remember how much higher our house prices are than pre covid, mostly because of low interest rates and now rates are where they were pre covid. Houses were already way too expensive in 2019.
Bigger picture it's just a no brainer to be on the sidelines for a while to see where it settles when there are so many headwinds for the market right now. Using the historical performance of the NZ housing market as a guide is very foolish right now I believe, interest rates have just broken out of their 40 year downtrend.
One of the main reasons it's going to keep falling are all the young people giving up on NZ and leaving. There are 20,000 less people in the country than at the start of April (yes some are only on holiday).
I bet if you look back on interest.co.nz comments section over the years it's always been prudent to be on the sidelines and not buy. The fact is, nothings ever got easier - only harder...
What do you reckon will be the next injection of welfare to push prices up, though?
Am curious.
It was grinding interest rates down for the last decade. Then it was pumping the market with QE. Now we're at low rates and having to move up...What will be the next mechanism use to push prices up?
Did you just call Albert2020 silly? Watch out you're about to be at the sharp end of some hate speech.
I wonder how many have calculated the $ reduction in future house prices against the number of years the higher interest on a lower mortgage equates? Say you have $200 and the $ Million house is now $800K - first you have a 25% deposit, then interest at say 5% on $800K ($1,000,000 - less $200K ) is $40K your loan of $600K would have to increase to 6.66% to cost $40K but you owe $200K less. NZ is second highest housing cost per capita globally so if the US does suffer a 30% asset crash could/will NZ see a 40-50% crash whatever the crash anything over 20% and the above calculation type is relevant.
Bubble bubble toil and trouble. 🫧
Trouble, trouble, boil and bubble
There, fixed it for you
Double, double toil and trouble;
Fire burn and caldron bubble.
This is probably around where it should have been throughout recent history given the probability of interest rates normalising to historical averages.
It seems strange to me that stress test rates are rising. Surely the entire purpose of having a stress test is because we understand that interest rates can go up and down over the decades long lifespan of a typical mortgage. If the rate they stress test at goes up and down at the banks whim, what is the point of it?
The illusion of prudence.
Exactly. Someone who bought six months ago when stress tests were lower is pretty much just as likely to face mortgage rates of 7.15% over the life of their mortgage as someone who buys next week.
I'd say it was a general acceptance that inflation was a thing of the past and rates were going to stay low forever which gave banks confidence to lower the test rate. But this time isn't as different as they thought and inflation is back. It really is a seismic shift in the world that is happening right now.
Ouch. Perhaps due to recency bias, but I feel that something will break leading to lower inflation whereby these rate increases halt and reverse.
Yes its quite possible that we end up back in QE at some point in the near future....but how much carnage that might happen between now and then while the Fed tames inflation will be interesting to see.
QE of course won't fix anything...just continue the path of destroying currencies, pumping asset prices, creating wealth inequality, and the cause of financial and social instability....so in reality it doesn't solve anything....in many respects its the problem...not the solution to a problem.
And i quote
" The problem with socialism is that you eventually run out of other peoples money". PM Margaret Thatcher.
... fire up the printing presses : let the money flow ...
Oh ... we've been doing that already for the past 2 years ...
... print faster , faster !
With neolib QE we can never run out of money. Wahoo
'Tis incredibly ironic how many beneficiaries of central bank wealth transfers are wont to tut-tut at others about 'socialism', showing a complete absence of self-awareness.
Yes landlords will soon run out of other tax payers money to fund accommodation supplements and the lower interest rate/higher asset price ponzi controlled by the central banks.
Yes, socialism bad /s
at what point will buyers committed to a purchase -- simpy find it cheaper to renege lose their deposit --- and then buy a similar house 100K cheaper in 3 months time ?
Apart from that loss of deposit --- what really is to stop this happening
The court case that likely follow to enforce the sale.
After all it is in the sellers interests to make sure the sale goes ahead.
but can it even be enforced if the buyer no longer has teh funds to purchase ? the bank may have agreed the lending at the time --- but wont after any long delay -- .... just interested as i have a friend worried their sale is going to fall through as the couple had finance agreed - but are now struggling to complete and saying their lender is reviewing their situation ....
Assuming they have signed a standard sale and purchase agreement, I think your friends could take a buyer who pulls out to court, and that buyer would have to pay any costs your friends incur from not settling. For example if your friends end up selling for 200k less than the original contract, they would be liable for $200k. I am no lawyer, but I think I remember a similar case in the last housing downturn.
Way too low. The test should be closer to the 8% level, as it is likely that mortgage rates will be well over 7% by mid next year.
They know it is too low, but they are trying desperately not to scare the market too much, so they are doing it in graduated steps.
"mortgage rates will be well over 7% by mid next year" - this would need a very big hike in OCR IMO, much higher than current RBNZ predictions. I think a lot of the projected OCR hikes are already somewhat baked in.
The relationship between OCR and whats banks are charging is already disconnected. RBNZ is asleep at the wheel and has been for ages. Personally picking the Feds schedule will have more of an impact on our financial dot in the South Pacific.
165 billion in New Mortgages March 2020 to March 2022 to 513 thousand borrowers. That represents more than one quarter of New Zealand households making a financial decision to borrow on the basis of record low interest rates that are no more. This is a far bigger problem than just first home buyers.
yes and no. "new" mortgages probably doesn't mean what you think it does. top ups? refis?
Yes of course it includes top ups and refis. Why do you think new car sales went ballistic in 2021? Release some equity to buy a boat and Ford Ranger to tow it with.100K who cares. That's only $50 a week interest at 2.5%. The house will be worth another 100k this time next year.
$1550 per week to pay for one million 3 bedrooms box on tiny Lot in Auckland plus you 200k deposit . What can go wrong.
The experts in hindsight are always outstanding here at "Interest". LOL
Interesting 24hrs. Firstly let me disclose that I have worked in commercial property for 25 years and am largely invested in property.
I noticed last night that my ASB banking app had a new thing on the dashboard- ‘investment return’. Clicked on it to see based on info provided by core logic they are predicting my property has dropped in value 27% in 12 months.
Largely dismissed it as inaccurate data until by chance I bumped into the Head Auctioneer of one of NZ’s biggest RE agencies this afternoon. His comment….. ‘yep it’s f*cked out here- probably at least 25% down’.
This NZ wide James or a specific location?
It related to my home in Central Auckland. I assume the data is adjusted on a suburb by suburb basis.
Anyone else with the ASB app got similar info?
I have the ASB App, nothing on my phone. Its probably related to just commercial not residential but anything Auckland central like apartments will be getting smashed.
NZ has become so nanny State that the children think nanny can solve all their woes.
They are in for a rude awakening. Time to grow up and wean yourself kiddies, nanny has dementia.
Unfortunately making it on your own merits and avoiding the pervasive victim mentality seems to be impossible for a lot here, people want to point out that some have made it and some have not and expect the state to remedy this. To a very large extent it has. Family size in the lower demographics is larger than in the higher demographics, sponsored by the state as an example.
How do you define 'have made it'?
Well I would start with those that need the support of the state to exist. Our society has some shared view of "rights" that ensures those who have not made it are not too aware of that fact but it remains that minus state support they would starve.
Ah...property speculators dependent on Reserve Bank and government welfare...
Yeah, fair enough. Far too much nanny state help for these folk who can't make it under their own steam in a knowledge economy.
Very few actually make it on their own merits. Those that work hard and earn high incomes in NZ usually deserve it but most wealth is made from capital working for them without further effort or being taxed. This gives a huge advantage to asset owners that to me seem blinded with entitlement in this country.
Using the ANZ calculator with an income of $87,000 pre tax pa (net $66,0000) they state I can borrow $647,000 repayable over 30 years at $3690 per month, or 67% of my net income.
That’s funny, I’ve always had trouble from ASB when topping up our mortgage despite having more double that income and a smaller mortgage and when interest rates were lower (one time we had to lower our credit card limit to get approval). I guess it does come down to expenses, which is crazy because if the shit hit the fan we could easily lower ours.
Funny (as in peculiar) indeed...especially when you consider that is calculated at 5.15%...if we apply the supposed 7.15% test rate my repayments come in at 79% of my net income....
What?! No way.... darnn
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