Kiwi households hit by 45% annual hike in mortgage interest costs

Personal Finance / news

Statistics New Zealand says annual inflation for households was 8.2% in the year to December 2022, fueled by housing, food and transport costs

2nd Feb 23, 11:13am by David Hargreaves

Source: 123rf.com. Copyright: troyzen

Household mortgage interest costs soared by 45% in the year to December 2022, helping push up the living costs for Kiwi households by 8.2%.

This is according to Stats NZ's latest household living-costs price indexes.

The household living costs figure is appreciably higher than the the Consumers Price Index (CPI) figures that came out a week ago and showed annual inflation at 7.2%.

A major difference between the HLPIs and the CPI is that the CPI includes the cost of building a new house (which rose 14% in the year to December), while the HLPIs instead includes mortgage interest payments - which shot up by 45%.

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

Stats NZ says the two measures of inflation are typically used for different purposes. A key use of the CPI is monetary policy (through the Reserve Bank and its use of the Official Cash Rate to help control inflation), while the HLPIs is to provide insight into the cost of living for different household groups.

In its detailed explanation of the HLPIs, Stats NZ says the coverage of owner-occupied housing in the HLPIs includes mortgage interest payments and a link to market-value property prices.

"This treatment aligns better with the inflation experiences of owner-occupier households," Stats NZ says.

"Excluding these in the CPI – which instead tracks the cost of purchasing new dwellings (excluding land) – is a design choice that aligns with the CPI’s principal use for monetary policy purposes. Given that the CPI helps the Reserve Bank set the Official Cash Rate, including interest payments in the CPI would introduce a circularity to this measure."

During the course of 2022 the RBNZ hiked the OCR from 0.75% at the start of the year to 4.25%. Mortgage interest rates rose similarly.

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

In terms of the groups cover by the indexes, Stats NZ gave these figures for the increases during the year:

all households - 8.2%
beneficiary - 6.9%
Māori - 8.1%
superannuitant - 7.4%
highest-spending households - 9.4%
lowest-spending households - 7.1%.

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45 Comments

by Yvil | 2nd Feb 23, 11:23am 1675290235

Household mortgage interest costs soared by 45% in the year to December 2022, helping push up the living costs for Kiwi households by 8.2%.

I think that's Jfoe's core point about raising interest rates.

by Jonny.Foe | 2nd Feb 23, 11:32am 1675290766

Indeed... the cost of living is skyrocketing because RBNZ are impotently hiking rates to, errrrm, tackle the cost of living crisis.

At some point they will recognise that no amount of slaughtering demand is going to reduce the price of:

Imported oil, which provides two-thirds of our energy and plays a MUCH bigger role in pricing than RBNZ realise
Food, which depends heavily on oil prices (and related fertiliser / plastic prices), interest rates(!!!), and international pricing (our meat, milk, and cheese prices move in lockstep with what other countries are prepared to pay)
Rent - because we are royally screwed in all kinds of ways there

by bw | 2nd Feb 23, 11:40am 1675291214

If all you have is a hammer to fix the roof, you use it.

We've had decades to get our house in order, and haven't. It's not the RBNZ that is to blame, but our successive weak kneed politicians - in other words, us. We could have used a CGT or DTI's or stricter LVRs, but we didn't. WE could have freed up land across the country, but Councils have the say on that, and the answer was "Not now. It might tarnish current property values"

What do we think will happens if the OCR is dropped back to, say, 3% to alleviate price pressure? I'll tell you just after I get back from Barfoot and Thompson....

by Jonny.Foe | 2nd Feb 23, 12:26pm 1675293961

Ha! Yes, I agree in general - it's a failure of Govt strategy / policy for sure.

The trouble is we have a single lever that influences a range of things that you really want to be tackling individually - slowing runaway credit creation for house price bubbles, stimulating investment in productive capacity, allegedly tackling spiralling consumer prices, etc etc. It's like putting your salt, sugar and pepper in the same pourer and then trying to make your tea sweeter.

by nzphoenix | 2nd Feb 23, 3:19pm 1675304365

We only have a single lever because we have decades of poor govt housing policy.

by Palmtree08 | 2nd Feb 23, 8:30pm 1675323046

Poor government immigration policy.

by dla06c | 8th Feb 23, 7:30am 1675794647

And yet the worst of the housing and affordability bubbling happened when the boarders were closed. Sure, high migration can contribute, but the core issues are domestic fiscal/lending practices, monopoly supply chains, building regulation, and good ol fashion greed. Stop distracting from the primary issues; it is time for New Zealand to own its problems.

by unaha-closp | 2nd Feb 23, 1:31pm 1675297861

Technically there are two hammers - the OCR and price inflation - both of them suppress demand.

by Greg-Hamilton | 2nd Feb 23, 5:18pm 1675311503

If all you have is a hammer to fix the roof, you use it.

Interest rate is their only solution and it is the problem at the same time.

They kept on reducing interest rate hoping to get good inflation; without controlling where the money is going.

Money creation into these mortgages should stop.

by Yvil | 2nd Feb 23, 11:46am 1675291586

Jfoe, do you have any certain answers, to my questions below at 11:44 ? Thanks

by Jonny.Foe | 2nd Feb 23, 12:26pm 1675293972

https://www.stats.govt.nz/methods/how-housing-costs-are-measured-in-con…

by Yvil | 2nd Feb 23, 5:54pm 1675313673

Thanks JFoe

by Noncents | 2nd Feb 23, 9:18pm 1675325884

To recognise that requires them to completely give up on their entire belief system.

Interest rates do not control inflation.

by Shamino | 3rd Feb 23, 9:45am 1675370754

Rents are fine. Flat in inflation adjusted figure. Falling in Auckland and other main centres

by nguturoa | 2nd Feb 23, 11:25am 1675290304

The low rates for an year or two were an anomaly and should never have been thought of as a norm.

The ones who thought anomaly was the norm will have to tighten the belts a bit tighter.

by BadRobot | 2nd Feb 23, 12:37pm 1675294631

...and how many column inches were written about why interest rates will stay low.

by WellingtonInvestor | 2nd Feb 23, 12:44pm 1675295072

Lots. Also stories about rates going negative.

But what was worse imo was experts with opinions of where the ORC would peak. As recent as mid last year they were predicting the OCR to eventually peak at 4%.

by gnx | 2nd Feb 23, 1:10pm 1675296613

The banks should have not dropped the stress test rates.

massive blunder because of greed

surely they should have known the risks and long term rates over a thirty year term… they are lending the money!

by Nzdan | 2nd Feb 23, 2:12pm 1675300332

As I've repeatedly said on here. It's the banks that make the final risk assessment. Does a 25 year old couple suddenly now need a finance degree while studying macroeconomics before they should take out a mortgage? "Oh, oops, well sorry about that there goes your deposit LOL. Hope you can manage the payments".

I don't recall needing an electrical qualification so I can make an informed decision on my qualified electrician's workmanship. Maybe we could scrap the consumer guarantees act, people should know a cheap oven might not last more than 2 years.

by Advisor | 2nd Feb 23, 3:42pm 1675305755

Make unrealistic claims on regular consumer products in NZ and the Consumer Protection, FSANZ or ComCom will shut you down. Vested interests in the "organized" housing ponzi don't even get a slap on the wrist for publishing incorrect, unsolicited investment advice in MSM.

by morepork | 2nd Feb 23, 2:23pm 1675301009

I agree, it was very bizarre. So you're taking our a 30 year loan. Ok we stress tested you at a rate that last happened 7 years ago. If it reaches that rate again all bets are off. You're good to go then.

by Yvil | 2nd Feb 23, 11:44am 1675291452

Hi David, thank you very much for this article, I'm very, very interested in the HLPI, which is a measure that was foreign to me until now.

I have multiple questions about the HLPI, and I would be extremely thankful if you would answer them, please.

1) "Stats NZ says the coverage of owner-occupied housing in the HLPIs includes mortgage interest payments and a link to market-value property prices."

Does the "link to market-value property prices" mean that, if house values drop or rise, so does the HLPI?

2) In terms of the 13 groups that make up the HLPI, is there one specifically for mortgage holders. This seems paramount to me as it's the main difference to the CPI. If so can you tell us the % increase for this group?

3) "Excluding these in the CPI – which instead tracks the cost of purchasing new dwellings (excluding land) – is a design choice that aligns with the CPI’s principal use for monetary policy purposes. Given that the CPI helps the Reserve Bank set the Official Cash Rate, including interest payments in the CPI would introduce a circularity to this measure."

I have read this sentence five times and I don't fully understand it (yes I'm pedantic, but it's important to me to understand this precisely). Could you please rephrase this more clearly.

Much appreciated!

by J.C. | 2nd Feb 23, 12:11pm 1675293078

Why not find out for yourself? The good people at interest dot co are not your personal research team.

by Yvil | 2nd Feb 23, 1:28pm 1675297684

JC, asking is a great way to learn, other people know things one doesn't. Interest is a great platform to get information, and I gladly pay more than the minimum contribution. If David or anyone else responds to my question, it can also help other readers.

Thanks to everyone who replied or provided a link :-)

by morepork | 2nd Feb 23, 12:24pm 1675293884

3) Is a direct quote from the data series page: https://datainfoplus.stats.govt.nz/Item/nz.govt.stats/a46a6353-947a-406…, so you may need to go to stats nz for clarification.

If you look at the bottom of the link above, it has descriptions of each of the subgroups, none of them are specifically mortgage holders.

If you look at the release: https://www.stats.govt.nz/information-releases/household-living-costs-p…

You can see the percentage weight given to interest payments in the expenditure weights csv file. It appears the expenditure quintile 5 (high) group has the highest weighting of interest payments at 7.4%, and they correspondingly have the highest yoy increase of 9.4%

by Yvil | 2nd Feb 23, 5:44pm 1675313088

Thanks morepork

by nz-it-worker | 2nd Feb 23, 12:30pm 1675294223

Well, for 3, if mortgage interest costs were part of the CPI, you could end up with runaway inflation (or deflation?).

If the OCR increases, then mortgage interest costs increase, which adds to CPI increases, which necessitates further OCR increases, and so on.

The feedback would create an unstable loop.

by GV 27 | 2nd Feb 23, 12:51pm 1675295501

How is that any worse than the daft feedback loop that led to booming house prices? CPI is useless as a measure for actual living costs if it doesn't include something as onerous as a modern mortgage with skyrocketing interest rates. They are probably fine in isolation if stable but that's not the world we live in anymore, and all it does is give ineffective decision makers shelter.

Feedback loop up or down, the impact on people's wallet is the same.

by morepork | 2nd Feb 23, 1:31pm 1675297885

The low OCR and interest rates led to high house prices, but there isn't really a feedback loop between the OCR and house prices. The OCR was kept low throughout the 2010s due to low inflation, but increasing house prices didn't contribute to that low inflation.

by GV 27 | 2nd Feb 23, 2:40pm 1675302004

We have different definitions of what 'low' is, but all things are relative I guess.

by Cur8or | 2nd Feb 23, 11:44am 1675291476

That burning sensation is the monetary policy working.

by nktokyo | 2nd Feb 23, 11:52am 1675291979

I indend to lose my house and keep spending on cafes, shops, holidays, digital services and etc.

by huttman | 2nd Feb 23, 11:55am 1675292158

well, that's what I have said before, the hiking interest rates is inflationary. It adds on living costs hugely.

by Three Veg | 2nd Feb 23, 12:41pm 1675294893

yes, but more than offset by the destruction of credit (money supply)

by GV 27 | 2nd Feb 23, 12:53pm 1675295580

People can't pay their mortgages with destructed money. The debt is there until you repay it. Philosophical arguments about economics and the money supply are irrelevant, given households cannot print their own money to service their debt.

by Carlos67 | 2nd Feb 23, 2:41pm 1675302075

Correct the reality is you have to come up with the money each week to pay at least all the bills. Talk of inflation eroding your debt is pointless, you still have to front the same amount of money every week.

by GV 27 | 2nd Feb 23, 3:16pm 1675304181

And never mind what inflation is doing to the rest of your living costs, you know, the ones they actually use to measure your increased living costs, not the hidey hole ones like mortgage interest.

by Rob Reid | 2nd Feb 23, 10:15pm 1675329358

It's great that everyone thought about the chance of rates rising to match the obvious risk before piling into the Ponzi that has made shelter so unaffordable for years. They can now implement the contingency plans they surely made at the time. Everything will be fine.

by Balanced Life | 2nd Feb 23, 12:45pm 1675295152

In general, this has always happened to currencies. Inflation is a hidden tax as the devaluation of the currencies lose buying power. The end game for currencies is, in history they have always gone to zero. This is the reason for the CBDCs.

by Averageman | 2nd Feb 23, 2:55pm 1675302903

Pretty good chance of .75 OCR increase or more on 23rd of Feb. If I was contracting a house sale tomorrow, I would have a DD clause till after this date.

by Carlos67 | 2nd Feb 23, 3:54pm 1675306444

The RBNZ will follow the FED. I would like nothing more than another 75bps slapped on my TD that literally comes out days later, but my money is on 25bps or possibly even zilch.

by Uh Oh | 2nd Feb 23, 3:56pm 1675306570

Thanks RBNZ.... ! B........s!

by Palmtree08 | 2nd Feb 23, 8:36pm 1675323415

But they were everyone's mate when dishing out free money. Seems to be a lot of fair weather friends out there.

by JohnTrz | 3rd Feb 23, 7:31pm 1675405879

UK housing market crash is "the end of the PONZI SCHEME" | Economics | The New Statesman

https://youtu.be/qTJ_uxrR-Cw

The world’s largest ratings agency, S&P Global Ratings, has warned that property in London and the south-east is overvalued by up to 50 per cent, that a “sticky, gradual decline” will take hold in house prices in the UK, and that the effects of interest rate rises could take almost three years to be fully costed in by the market. The same is happening across the world, as central bankers make borrowing more expensive in an attempt to curb inflation. In Sweden – where the government is much less active in its support of the market than in the UK – house prices have fallen 17 per cent from last year’s peak.

In Japan, residential property prices have still not recovered back to their 1991 peak. The big question for the UK financial sector is not how much prices will fall but how long it will take them to recover.

https://www.newstatesman.com/economy/2023/02/housing-delusion-jeremy-hu…

by Mr Ed | 4th Feb 23, 7:30am 1675449020

Tiz the Whizz ? 😊