The Reserve Bank (RBNZ) estimates the reduction in term deposit and mortgage rates between 2016 and 2020 increased New Zealand households’ net incomes by 0.1%.
The RBNZ came to this figure by looking exclusively at the cashflow effect of deposit and mortgage rates falling. For the purpose of the exercise, it ignored the asset price inflation and positive labour market effects that accompanied lower interest rates.
The RBNZ found the country’s 30% lowest income earners saw their incomes fall between 2016 and 2020. They lost more from lower bank deposit rates than they made from lower mortgage rates.
These people were largely made up of retirees (44%), beneficiaries and part-time workers, who either rented or owned property mortgage-free.
The country’s 70% highest income earners saw their incomes rise between 2016 and 2020 - once again looking at the impact of falling mortgage and term deposit rates in isolation.
The largest benefit was felt by the seventh income decile. The highest income earners didn’t benefit as much from lower mortgage rates, as they held a wider range of assets.
The RBNZ also looked at how low interest rates affected different age groups.
Older people’s incomes fell, while younger people’s increased, as they were largely borrowers rather than savers.
The RBNZ found the average mortgage holder’s income increased by 1% between 2016 and 2020.
Mortgage holders with low incomes benefited the most from mortgage rates falling.
As for non-mortgage holders, their cash-in-hand fell by an average of 0.4%.
The research is part of a larger body of work the RBNZ is doing on the distributional impacts of monetary policy.