A sharp increase in the number of mortgagee sale properties has emerged over the last few weeks.
Interest.co.nz has been tracking the number of mortgagee sales on the market each week since November 2022. For the most part their numbers have remained relatively low.
Up until early October 2023 there were less than 50 mortgagee sale properties on the market at any time. In mid-October 2023 they pushed past 50, and passed 60 in April last year.
They hovered between 50 and 60 for most of last year, then began rising again this year.
The increase in mortgagee sales has been particularly strong since late September this year. At the beginning of October it went past 90 for the first time since interest.co.nz began collating the numbers. By mid-October, the numbers had surged to 109. (See the graph below for the trend so far this year).
The timing of the increase is surprising because it comes as mortgage interest rates have been falling. However, Reserve Bank data shows the total value of impaired loans held by banks increased by $15 million in August to $563 million.
There are several things banks can do to prevent a mortgagee sale when a customer strikes financial difficulties including; extending the term of a loan, converting it to interest-only payments for a period of time and, even payment deferral while the customer tries to restructure their finances.
However, the fact the number of mortgagee sales has been rising even as interest rates fall suggests the most likely reason is borrowers have faced an unexpected drop in income, usually due to job loss or business failure.
In such situations, no amount of mortgage restructure can make up for the fact the borrower simply has no money coming in.
The borrowers who will be most vulnerable in such a situation will be those who bought during the 2021/22 housing boom, particularly those who purchased their property with a low equity loan at the maximum term available, and then suffered a loss of income.
As well as losing their ability to make their mortgage payments, these people may also have faced the indignity of being tipped into negative equity, as the value of their home declined in the face of a weaker housing market, leaving them with little wriggle room to restructure the loan.
In such situations, a mortgagee sale becomes almost inevitable. And the borrower may still owe the bank money even after the property is sold, if the sale didn't raise enough money to fully repay the mortgage and any additional bank charges plus the real estate agent's commission on the sale.
That could see the borrower not only losing their home, but potentially facing bankruptcy as well.
*This article was first published in our email for paying subscribers early on Friday morning. See here for more details and how to subscribe.
20 Comments
The timing of the increase is surprising because it comes as mortgage interest rates have been falling
This shows the typical lack of understanding of the lag between interest rate rises/falls, and their actual effect on the market.
I disagree, it shows a total lack of confidence in the NZ economy and those running it. I've never seen it so bad, not in 40 years. I also don't see it improving, and I'm an eternal optimist.
You are both right. The RBNZ single-handedly ruined the economy due to a total lack of competence. They should have known about the lag, they shouldn't have gone so high, they should have cut sooner and faster, and they will no doubt cut too far and cause the opposite problem.
Their job is to keep the economy running smoothly, but they have been doing the exact opposite, yanking the OCR wildly in each direction. They are paid the big bucks to make small proactive changes, any idiot could make big reactive changes.
Single-handedly?
You gotta be jocking. This has been a huge collective effort by the ruling parties and the idiot voters that put them in power. Effectively they all gone hard out to rid us of the ability to produce anything worth selling and hence where we find our economy.
Correct RC, our current malaise has many fathers. We are lazy, self-indulgent, entitled and not that smart.
Disagree. The ruling parties and the idiot voters didn't help, but when it comes to the economy, the RBNZ has caused most of the problem.
Labour's big borrow up at Covid didn't help, same with National's spending cuts, but without the OCR swinging wildly around the economy wouldn't be in this position. We still have much lower government debt than many countries, we should be in growth mode.
I would agree that both parties have caused this by giving the RBNZ stupid mandates. Unemployment should be a part of the mandate, but clearly made a secondary role for when inflation is under control.
Growing what exactly?
GDP, jobs, confidence, spending, etc. It will happen now that they have lowered the OCR, but much later than it could have, and at the expense of many people who have lost their job, house, business, or just moved to Aus.
Incidentally the Aussie economy is still doing OK. Are you saying their governments have been significantly better? Or is it just that their central bank isn't so insane?
The OCR is not nearly the culprit you think it is, in fact it being too low was the problem. Many borrowers were on fixed rates as the cash rate spiked and not really that impacted.
I'm much more of the view that being a geographically isolated primary producer with some of the highest power and petrol prices in the world has finally taken its toll. We want the benefits of first world infrastructure and standard of living, a large welfare state and to cut our carbon emissions to those agreed at the Paris Accord.
Guess what, it's not possible. Something has to give, we need to grow the economy, find new exports and export markets and increase productivity. Even then we will just be stopping the deterioration. At this point our best strategy is to become a state of Australia.
Well said. Te Kooti gets it. A country as isolated as ours with the backbone of our economy made up from agriculture and tourism shouldn’t be as wealthy as we are. Add to that no minerals. We’ve done well to hang on so long. The slide in living standards is inevitable
"GDP, jobs, confidence, spending, etc."
What does that even mean. In the past 40 years it's mostly been based on increasing the total mortgage lending to increase the money in circulation. That's a money grows on trees thinking. I believe we are at it's limits and there's a need to shrink realestates shre of gdp drastically but that's going to mean lots of jobs disappearing. And the crucial part is we have killed off anything productive that those people could have done.
Banks have been suppressing the truth. Perhaps this is part of the decision of reducing LVRs again to keep the banks from acting...
That's my speculative take too. Banks will have been extending and pretending with non-performing loans because they didn't want to pile mortgagee sales into an already crashing market. With lower interest rates now putting something of a floor under the crash it's a little safer to release supply.
Given the RBNZs ongoing dysfunctional failures from 2020 on & the major Australian banks disproportionate enthusiasm for NZ residential mortgage lending, surely its time for mandatory no recourse mortgage loans as eg USA. There seems little likelihood of any other market mechanism being as effective in promoting sensible constraint as demanding the banks having their own skin in the game.
Why it will never happen in NZ is a good question.
Because banks control house prices by setting what they will loan on it. Up the risk to them and they will loan a lot less. Turkeys won't vote for Christmas.( Though with reference to my comment above they did vote in our government).
The data in the articale needs a longer tiem scale to be insightful. I think this is a bit of a "the sky si falling" story. According to AI;
Mortgagee sales in NZ have been rising since a 2017-2021 low point, influenced by factors like job losses and the economic climate, though they remain much lower than the 2009-2012 period following the Global Financial Crisis (GFC)
For example, while overall sales are increasing, they are still significantly lower than the GFC peak of 768 in the July 2009 quarter.
Numbers decreased significantly between 2012 and 2021, reaching a 17-year low in early 2022.
I'm sceptical and want to see who is being sold up.
1. First home buyers.
2. Investors. Lured by the bubble.
??. Are there many long term owners or are they mostly new owners. Etc.
KH
You are possibly missing the most significant group being sold up - that is those who have mortgages on their homes for business purposes.
Numerous small business owners finance their business using their home as collateral. Due to the high failure rate of small business, interest on a home loan is usually less than half when the business is used as collateral. RBNZ mortgage data indicates slightly over 10% of mortgages are for businesses purposes and in reality it may actually be higher.
With the high current number of businesses (especially hospitality) going into liquidation the likelihood of business owners having been liquidated, and now with no income, being able to negotiate an arrangement successfully with their bank is likely to be minimal.
Of the 109 current mortgagee sales, fourty or ffifty initiated through small business failures would not be unrealistic.
wow who could have seen this coming
Please add the 25,000 people who have converted from principal and interest to interest only.....
expect some of these to fall over in the coming 12-24 months as well
its just banks have extended the runway, the plane still has to get off the ground before it hits the end of ... the road.
"October, the numbers had surged to 109" That's a drop in the ocean. There must one or two thousand that are hovering just before a mortgagee sale. How many mortgagee sales are there that aren't advertised? I suspect the advertised ones are there to drum up a large number of interested buyers.
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