Mortgage interest costs rose 39% for Kiwi households in the past year

Personal Finance / news

Statistics New Zealand says annual inflation for households was 7.7% in the year to September, fueled by housing and food costs

26th Oct 22, 11:37am by David Hargreaves

Household mortgage interest costs rose by some 39% in the year to September, according to new figures from Stats NZ.

These rising mortgage costs, along with high food prices, helped to push the annual inflation for households up to 7.7% in the year to September, as measured by Stats NZ's household living-costs price indexes (HLPIs).

That's actually higher than the inflation figures that came out last week, as measured by the Consumers Price Index (CPI).

A major difference between the HLPIs and the Consumers Price Index (CPI), which showed annual inflation of 7.2%, is that the CPI includes the cost of building a new house (which rose 17% in the year to September), while the HLPIs include mortgage interest payments - which shot up by the aforementioned 39%.

"These two measures of inflation are typically used for different purposes. A key use of the CPI is monetary policy, while the focus of the HLPIs is to provide insight into the cost of living for different household groups," Stats NZ said.

It said all household groups faced their highest or equal-highest annual cost-of-living increase since the HLPIs series began in 2008. The 7.7% annual figure is actually an increase from 7.4% as of the June quarter.

This is the breakdown by groups of Inflation experienced from the September 2021 quarter to the September 2022 quarter, according to Stats NZ:

all households was 7.7%
beneficiary was 6.5%
Māori was 7.7%
superannuitant was 6.8%
highest-spending households was 8.8%
lowest-spending households was 6.5%.

"Higher prices for housing and food were the main contributors to the increase across all the household groups," Stats NZ's consumer prices manager Katrina Dewbery said.

Stats NZ says the quarterly household living-costs price indexes (HLPIs) measure how inflation affects 13 different household groups, plus an all-households group. The consumers price index (CPI) measures how inflation affects New Zealand as a whole.

Stats NZ says about 7.4% of expenditure for higher spending households is on interest payments. This compares with 4.7% for the average household and 2.0% for the lowest-spending households group. This means highest-spending households experience the higher interest rates more than other household groups.

Petrol prices were another contributor to the rise for most household groups, increasing by 19% for the average household when compared with the same quarter last year.

Quarterly living costs rose for all household groups in the September 2022 quarter compared with the June 2022 quarter. The cost of living for the average household rose 2.1% when compared with the June 2022 quarter. It was 1.5% for beneficiary households, 1.9% for lowest spending households, and 2.4% for highest-spending households.

Stats NZ said rising food prices were the biggest contributor to quarterly inflation for all household groups. For the average household, food prices rose 4.1%.

Fruit and vegetable prices were the biggest contributor to the price rise for all household groups, followed by grocery food. Within fruit and vegetables, tomatoes, lettuce, and broccoli were the main contributors to the rise.

Higher prices for property rates and related services, airfares, rent, and interest payments were also major contributors to quarterly inflation for most household groups.

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21 Comments

by HouseMouse | 26th Oct 22, 11:47am 1666738027

High interest rates contributing to inflation, who would have thought.

by Independent_Observer | 26th Oct 22, 11:57am 1666738665

No surprise really when you look at the balance sheets of businesses around the world, see the level of debt they have, and see the impact of their expense if the cost of debt rises. They have two options:

1. Raise prices of their goods and services to increase income and offset the increased interest rate expense.

2. Leave prices where they are and chew into their retained earnings with the hope that debt costs reduce in the near term (but really who is going to do this if wages are rising at the rate they are - i.e. prices and wages enter the inflation wage/price spiral loop).

Raising interest rates, in the short term, will create even more inflation - and this means that its possible that central bank funds rate end up going far higher than what could have been anticipated.

by J.C. | 26th Oct 22, 1:02pm 1666742569

Your options miss the following:

Maintain market share while mainitaining stable mkt share by

- Accepting lower profit margins

- Finding cost efficiencies

Very basic I know but this has become the business environment for quite some time in countries like Japan. It is also one of the reasons why Japan is generally more affordable than countries like NZ.

by Independent_Observer | 26th Oct 22, 1:26pm 1666744013

Good point (as usual there J.C) - I considered adding profit margins to the comment, but realised I would be going down a rabbit hole and a whole new line of discussion.

If there is strong competition in markets then sure, reducing profit margins might be a possiblity. But my experience (mostly..) in NZ that this isn't the case - and businesses think that expenses can simply be passed to consumers to burden (in total).

by tothepoint | 26th Oct 22, 1:18pm 1666743480

The 39% figure (that Greg refers in his opening paragraph above) comes off an historically low base....... So be careful how you interpret it.

Most people aren't complete fools. They knew that interest rates would rise and when that happened, the hikes could well be large - and rapid.

As always, however, some debtors inevitably hit the wall at speed - creating opportunities for others.

TTP

by Independent_Observer | 26th Oct 22, 1:24pm 1666743877

Fair enough - my comment is a bit broader than just NZ and the residential property market. I'm thinking global and across all elements of the economy and the pricing of all goods/services (and the debt carried by the businesses producing those goods and services).

by Jonny.Foe | 26th Oct 22, 12:54pm 1666742058

Fancy that!! Over the last 6 months, the vast majority of increases in the cost of living are due to just seven of the 44 subgroups in the household living cost index. These are shown below with their % contribution to the overall increase:

Interest payments (RBNZ): 20%
Fruit and vegetables (fuel, fertiliser, plastic, shortage of labour): 11%
Actual rentals for housing: 9%
Property rates and related services (local Govt decisions): 9%
Grocery food: 8%
Private transport supplies (fuel): 6%
Restaurant meals and ready-to-eat food (cost of food): 6%

We must now be at the point where the supposed solution to rising prices (increasing interest rates) is going to do much more to increase the cost of living than it does to reduce it.

by Cur8or | 26th Oct 22, 11:51am 1666738308

Crabs in a bucket?

by Fitzgerald | 26th Oct 22, 12:17pm 1666739865

It would be interesting to see how landlord mortgage costs have risen.

Will the vampire squids try to extract 39% more blood from their tenants? You can bet that they'd like to try.

by Tin Pot Tony | 26th Oct 22, 12:53pm 1666741990

Hearing anecdotally of fast food operators dumping and running now in the cbd. No staff, high crime, high rent = not worth it.

by Chaosinflesh | 26th Oct 22, 12:56pm 1666742208

Was shocked when I went into work last week (in Auckland CBD, I'm usually remote) at the amount of empty shops there. More empty than not, including some of our favourite eateries gone. Only 2 stores left occupied on the bottom floor of our office building.

by have no idea | 27th Oct 22, 11:52pm 1666867936

Any minute now, a flood of new immigrants will come into nz. They will reside in auckland cbd and see how awesome nz is and decide to buy a $1.5mil house here with rich family money. All within the next 12 months.

Any minute now.

by J.C. | 26th Oct 22, 1:04pm 1666742669

Hearing anecdotally of fast food operators dumping and running now in the cbd. No staff, high crime, high rent = not worth it.

And no customers

by Chaosinflesh | 26th Oct 22, 12:53pm 1666742039

At least one has already been ruled against by the tenancy tribunal.

I hate to think what the financial position of those landlords on IO is going to be like in the near future.. going from ~3% IO with deductability to principal + 5,6,7%+, with reducing deductability is a massive increase in costs.

Assuming moving off IO with 25 years left:

3% IO with 100% deduct -> 6% + 4% principal - 0% deduct -> 333% increase in mortgage costs.

Maths is simplified, but 10% on an 800k mortgage is roughly the median household take-home pay, sans student loan.

by Fitzgerald | 26th Oct 22, 1:08pm 1666742895

People farming ain't the cash cow it used to be.

Maybe it's time they moooo-ve on to new investment types.

It wouldn't be so baaaa-d to have a lot fewer landlords.

And maybe the ones that survive will be more humble, less greedy.

by Whome | 27th Oct 22, 12:12pm 1666825927

maybe the ones that survive will be more humble, less greedy.

Says he who constantly shows much humility...

Do you have the same view on farmers i.e. they are all greedy and see people as a means to extract as much as they can from them to prop up their debt to own the farm?

ie they make little from farming but most from the increase in the value of their farm

Are food farmers also purely 'greedy' forcing people to pay more for that basic need of food so they can prop up the value of their farms?

by Whome | 27th Oct 22, 12:10pm 1666825850

excuse my ignorance as I am old but what does a vampire squid have to do with landlords and Kianga Ora? They are the largest landlord in NZ

by Jonny.Foe | 26th Oct 22, 1:00pm 1666742443

NZ businesses and households now have around $550bn of debt - every percentage point increase in interest rates adds $5.5bn to the cost of living or doing business. Hiking interest rates with private sector debt levels at over 150% of GDP, whilst Govt stupidly tries to run a surplus is batsh*t crazy.

by J.C. | 26th Oct 22, 1:07pm 1666742846

Well illustrated Jfoe. Notice how when Robbo speaks, he always refers to low public debt while not referrging to pvte debt levels? The NZ govt sycophants lap it up and feel that they're relatively better than the rest of the world.

by Matt_B | 26th Oct 22, 1:43pm 1666745023

yes, He mentions Gov debt opposed to Crown Debt (~33% )

Of the 340B residential mortgages 40B variable and 153B will need repricing in the new 12 months.

Some of the data suggests that people moved to a 1-2 year fixed term to take advantage of the low rates courtesy of the RBNZ.

by Jonny.Foe | 26th Oct 22, 2:24pm 1666747492

Yes, he also fails to mention that reducing public debt levels means, by accounting certainty, increasing private sector debt levels (assuming constant trade balance). His commitment to running a budget surplus is a commitment to increase private sector debt levels. Not something to celebrate!