Many of the country's homeowners are bracing themselves for substantial rises in monthly mortgage payments. Some will have already had that happen. And many seem well and ready, according to new industry figures just released. However, some are doing it tough already.
New banking industry figures show that - as at the end of last year anyway - close to half of the country's homeowners with a mortgage were actually ahead with their payments. But a small number were behind. And more people in the latter half of 2021 sought 'hardship' status with their banks, although fewer were actually granted it.
Around about 15,500 customers moved from paying interest and principal to just interest-only in the last six months of 2021.
The New Zealand Bankers' Association has released its latest half-yearly Banking Insights, covering the six months to the end of December 2021, using information collected and aggregated from NZBA’s 10 main retail member banks.
New Zealand Bankers’ Association chief executive Roger Beaumont said about 44% of people with a home loan were ahead on their repayments.
"That’s likely because, as interest rates have declined over the last few years, they may have retained their repayments at the same level," he said.
"Depending on their loan, others may have increased their repayments further to get ahead and repay their loan more quickly.
"This shows good financial capability among people with home loans. It also means they’re quite well placed in an environment of rising interest rates."
The NZBA insights show that 1.2 million bank customers have a home loan.
The average value of those loans is $296,000.
While 44% of customers were ahead with repayments as at December, 2% were behind.
NZBA says that of the 1.2 million customers with home loans, 4300 were granted 'hardship' status over the six month period, a decrease of 28% on the last period.
However, it goes on to say that the the number of customers who actually applied for hardship [and presumably didn't get it] increased 26% on the previous six month period to nearly 7600.
In addition, it says that about 1.3% [which would be around 15,500] of home loan customers switched from principal and interest to interest only, which is an increase of about a third from the previous six months.
NZBA says that about 56,000 new homes loans were written from July to December last year, which was down about 20% on the amount of new loans in the first half of the year.
The average size of those new loans was $407,000, which w a 0.3% reduction when compared with the first six months of 2021.
About a quarter of those loans - 13,600 - were for first home buyers.
The number of home loans on variable rates only has fallen by a further 3.9% and now represents only 19.7% of all home loans.
More customers are choosing to have only fixed interest rates now representing 61% of all home loans, an increase of 5% compared with the prior six months.
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This is what some commenters do not see. "But I'm ahead in my payments and can weather any increase in interest rates". Yes, you sure can. But there's 15.5k people who will struggle. And let's say the bank tries their best to negotiate so they don't go into mortgagee sales. Still, a good chunk will be forced to sell at the price buyers can bear if their situation gets desperate enough. There's a long way to go with these house price declines.
Or its 15,500 people in the tourism or foreign student sector suffering under our health restrictions, most of which will see a significant increase of income in 2022/23 as we reopen. There have been other things happening in NZ apart from interest rate hikes. It is really hard to call what will happen, because there are whole sectors of NZ economy which will make a lot more money in 2023 than they made for the last two years.
NZ tourism will take a long time to get properly restarted.
People from East Asia are well known to be conservative in terms of travelling in times of uncertainty. Meanwhile, recessions in many western countries will also be a headwind.
I suspect it won't be till at least 2024 that tourism starts to return to anything like what it was pre-pandemic.
I know of three retirees in there late 60's, one couple in 70's that are on interest only. They do this so they can stay in the house they have been in for many years and don't want to rent, obviously they have capital in the house, but for them is about being where they are comfortable and feel secure. These are the ones I feel sorry for, they were'nt in the KS scheme long enough to get long lasting benefits, trying to survive on a pension with increased rates, cost of living and then the old three punch raising interest rates. I think there may be a lot of elderly in this boat.
They're pretty much renting aren't they?
(edit) and thinking about it a bit more, the value of the loan doesn't shrink with any downward valuation of their property, so with rising interest rates its a double whammy. Paying increasing 'rent' on the same property which is slowly becoming worth less and less.
I think if you chat to some of these elderly, capital gains is not what they are after. They live somewhere were they feel they have some control, and security. Even if they are on interest only, they feel they are still the owner and a LL won't kick them out and they need to look for somewhere else to live, at a time of their life when they don't want too (very daunting for an elderly person). It would be interesting to see the stats on interest only at a demographic of age. Sure once they pass then whoever in inheritance may get whats left, some may have no family. But it should be an area of concern, and I think going forward this will be common place with large Debt being carried now well into retirement age.
Good comment, thanks. I imagine for many that's the primary motivation and capital gains have been a nice bonus on top when it comes time to move. A friend who is a real estate has been on interest-only for the last decade, but that's primarily for capital gains (he is older but not retired).
Yes, I think our enriching ourselves by passing massive debts to following generations will definitely cause common problems with debt when entering retirement in future.
I can certainly see why elderly people would go interest only. I'm wondering if anyone knows the time frames on interest only? Mortgage Lab (found via Google) states typically 2 years for your own house and 5 years for an investment property. Google also brought up an Interest article from 2016 that states ANZ offered 10 years with most other banks 5 years. Interestingly Westpac had just reduced from 15 years to max 5 as a result of 'investors continuing to dominate the housing market'. Could be good to have an updated Interest article including demographics as you say.
ANZ max. interest only is 2 years or 5 years if there is a rental property involved. However, if buy a new rental and want 5 years interest only, the affordability assessment will be based on the lending remaining being repaid P&I over remaining 25 year term (since max. loan term is 30 years). An affordability assessment is also required when someone wants to switch to I/O, so it's not particular a viable option for retirees unless they have gone through hardship channels.
I'm seeing this also as have a number of friends who have retired. Some of these friends are already seeking jobs again as it's not just interest rates going up, it's rates, electricity, petrol, groceries and so on. A friend of mine told me the other day that he was seriously looking at a reverse mortgage.
If they are in their late 60s early 70s now, they would have had pretty good economic tailwinds for at least the last 30 years or so - lower house prices, decreasing interest rates, 10 years of KS (without having to decimate it to get in the housing market) and pretty good returns until quite recently. Also while Kiwisaver didn't come into existence until 2007, there were plenty of workplace super schemes in existence prior. It might be tough for these people right now, but it is way worse for lots of people who didn't have the economic tailwinds these folks have had for most of their working lives.
This is the first I've spotted in a long time in Central Auckland... https://www.trademe.co.nz/a/property/residential/sale/listing/3604191881
~125,000 loans in 2021 averaging ~$407.5k (adjusted for 0.3%).
60% of mortgages refixing.
That 2% struggling last year may be a blip on the number struggling come the end of this year. Yesterday surely was not a good time to buy.
Many of the remaining 54% (648,000 customers) who are neither ahead nor behind and bought 4-5+ years ago will be ok, but it's safe to assume that there will be some panic setting in.
Where will interest rates land following tomorrows OCR review?
It’s amusing they are trying to focus on people ahead on their payments. no one is concerned about the person who bought 5 years ago on 5% interest rates when prices were 50% lower. These will be the people who got “ahead” on their payments as interest rates fall, but they will have low debt and could already service higher rates
The problem is the consolidation of high risk lending in a relatively small group of borrowers (FHB and investors) who leveraged up to the eyeballs at 2.5% rates.
it would be like claiming the US didn’t have a housing bubble because 80% of mortgages were on 30 year terms with a low risk profile - yet the 15% of adjustable rate (and subprime) managed to implode the whole market
10% of customers took out a new loan last year. If half of those hit hard times and are forced to sell, that's 5% of the overall 1.2m customers. Or 60,000 homes entering the market. That would nearly triple the current listings.
Even the 2% hitting hard times last year, if they were forced to sell this year it would nearly double the listings.
This is all hypothetical, however it's easy to see how a pinch at one end can cause a dramatic effect as you say happened in the US
Prices rise and fall as a result of the marginal buyer and seller.
House prices went up because we had investors competing with FHB's pushing prices up (with banks willing to lend ever increasing quantities of debt as interest rates went down)....they could fall in the same fashion if those investors and FHB's are no longer credit worthy at current price levels.
The IMF report was relentless with this point recently. The inability to suppress the demand/competition between FHB and investors was a key factor in the rapid rise as you say. With combined volumes of both dropping by ~40% and demand dropping significantly in FHB in lower income brackets it's creating a phenomenon whereby to purchase a house at current prices you'd need to be well above the median income in your desired location (or mad). Then in terms of serviceability, despite rate testing, there is surely an unfortunate line drawn in the sand whereby many stay in, and some drop out. Article suggests that line is 2% of customers minimum. The stories of these will ring a lot louder than those making money on the way up, and the market could initially fall faster than it rose - remembering that a % downturn is greater than % upswing, anything more than ~2%mo decrease would outpace a gain at almost any point in 2020/2021.
2% last year when rates had barely moved and inflation hadn't fully kicked in vs this year could provide a scary jump past the tipping point?
Also is it because it is easier (not easy) to rationalise profiting from the rising market than it watching the "value" of your own assets picking up momentum on the way down?
Ahh, right! I'm sure the banks have a very close eye on the situation, however releasing that information to the public would surely be detrimental to their lending commitments. Knowing the RBNZ has been on the line to banks regarding risky lending over the last couple of years, you could derive a blacklist I'm sure!
According to RBNZ C31 ->
- 2014 - 2016 Investor Total Borrowers consistently outnumbered FHB 3 to 1 peaking at 3.3 : 1.
- 2017 - mid 2021 this figure was 1.5:1
- Nov and Dec 2021 FHB exceeded Investors for the first time by 4%.
Apparently investors are not the problem........
The problem is that people throw at houses all they can get as mortgage.
It is a very sensitive asset, the cost of not having a roof is virtually infinite... so the cost of securing one will just go up to the maximum possible availability.
How much air would cost if it was scarce? or water? Would you trust the market to deal with that in the same way it was allowed for houses?
It doesn't matter if they are investors or fhb.
Investors can leverage much more (or at least they were) compared with a fhb, and also in the case of "business" (ahahahah) they could deduct interests.
Anyways, all the actors are just doing what is allowed them to do. I am not expecting much ethic in this field. I am not blaming investors because they are investors like I am not blaming speculators to search for good deals to make money.
I blame the rule makers, to have allowed that.
Agreed. The rule makers are the cause, the investors are the symptom. But you need to highlight the symptom to show that there is an issue.
It also doesn't mean one must respect or like investors/speculators, just like real estate agents or used car salesmen or ticket scalpers. Guarantee you there's probably a few property investors out there that become furious when they miss out on tickets to their favourite events only to see them online for triple the price.
yup,
Love the analogy, and it stories correctly the situation.
The system allows for something to happen and people feel bad.
Ticket scalpers are filling an empty space, that's it. Even if some of them might leave the market out of some ethical issue someone else will do.
Same with houses. As said, I don't blame the actors, I blame the directors.
We are not more than pawns, our moves are constrained.
It’s amusing they are trying to focus on people ahead on their payments. no one is concerned about the person who bought 5 years ago on 5% interest rates when prices were 50% lower. These will be the people who got “ahead” on their payments as interest rates fall, but they will have low debt and could already service higher rates.
A 50% rise disappears on a 33% fall.
The RBNZ DTI survey defines Borrower Number as. Number of monthly committed residential mortgage loans, which are finalised offers to customers to provide mortgage loans or to increase the loan value of an existing mortgage loan, as evidenced by the loan documents provided to the borrower.
https://www.rbnz.govt.nz/statistics/c40-residential-mortgage-lending-by…
July 2021 to December 2021 that number is 134000.
NZBA says that about 56,000 new homes loans were written from July to December last year. So are the balance increases to existing loans to buy stuff?
what exactly is the make up of the 1.2 million bank customers ? seems very high given the actual number of homes out there! If you had a partner and three tranches for example --- is that counted as 6 ? again if you are a couple and have four homes - is that 2 or 8 -- getting fed up with all the smoke and mirrors counting tricks
You're allowed to make a lump sum payment of 5% of the balance owing (certainly at least with ANZ).
Making lump sum payments
On a fixed ANZ Home Loan, you won’t be charged an Early Repayment Recovery if you’re making your first extra repayment in that year and one of the following applies:
- you make regular extra repayments towards your loan and these change your regular payments by less than or equal to $250 per week
- the extra lump sum repayment you’re making is no more than 5% of the loan amount you owe on your loan.
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