New Zealanders owed a record $397.5 billion on their residential mortgages at the end of the June quarter of this year, up $21.6b (6%) compared to the same time last year, according to the latest Reserve Bank figures.
A total of $27.3b of new residential mortgage lending was advanced in the June quarter (Q2), up 1.5% compared to Q2 last year.
Interest on the debt weighed in at $4.8b in Q2 this year, down 12% from $5.4b in Q2 last year. The drop came even though mortgage interest rates have been increasing since the end of last year, with the average two year fixed rate increasing from its recent low point of 4.49% in November last year to 5.26% in June this year. That suggests many people with mortgages are still on lower fixed rates and are yet to feel the effects of rising interest rates.
The total value of mortgages repaid in full was $15.2b in Q2, up 2% compared to Q2 last year.
Borrowers made a total of $7.3b in scheduled mortgage payments in Q2, and another $4.8b in additional payments over and above the minimum required.
That suggests many people are making significant extra payments to pay down their mortgage as quickly as possible.
The figures also show that there has been a substantial increase in low equity lending, where the amount borrowed is more than 80% a property's value.
In Q2 last year, the total value of low equity mortgages was $31.9b. By Q2 this year that had increased 25% to $39.8b.
Over the same period the total value of standard mortgages, where the amount borrowed is no more than 80% of a property's value, had increased by just 4%.
Low equity lending is particularly common for first home buyers.
The comment stream on this article is now closed.
9 Comments
Not "winning"
What could possibly go wrong?
NZ GDP is circa $450 billion. https://www.stats.govt.nz/indicators/gross-domestic-product-gdp/ with annual growth less than 1%.
And we have mortgage debt of nearly the same amount, close to $400 billion with debt servicing costs far greater than the GDP growth (e.g. circa 5 times current GDP growth).
Where does the income come from to fill this gap? How do you service debt where the interest expense is 5x the growth of the general economy? (and both are of a similar size)
Inflate it away is the go to solution.
Was
Specueverage has no perspective on overshoot. We have delayed the truth/kicked the can with mass printing several times. Expectations of su. Ess thru rinse and repeat adnausium are blinded by their own bias.
How? If inflation is high, then interest rates will be higher (to keep inflation in the RBNZ mandated band) - which in turn will create more debt servicing expense (ie interest to be paid on existing debt).
When did we ever ‘inflate debt away?’. For the past 40 years, all we have done is increased mortgage debt relative to productivity (ie private debt vs gdp) - inversely correlated to interest rates. Interest rates went down for the past 4 decades, so we took on more debt because we could. We never ‘inflated debt away’. This term is a property myth like ‘house prices double every 10 years’. Perhaps partially true (if you cherry pick data from timeframes that best suit your argument), but not an absolute truth. An absolute truth is true all of the time, not just some of the time.
If ‘house prices double every 10 years’ then we should expect the average house price in NZ to be $2 million by 2030, then $4 million by 2040. If this is true, it means 7% annual growth. Which will require either substantial mortgage debt growth to allow such growth in prices (but we are maxed out in terms of debt vs gdp) or substantial income growth (but that would mean inflation is running far too hot ie income and rental growth waaay above 5% which would result in very high OCR and mortgage rates…)
Google Gemini AI writes that it's possible-
Here's my take: Yes, debt can be "inflated away," but only under specific economic conditions—and it primarily works for long-term fixed-rate debt, not modern variable-rate mortgages.
The concept of inflating debt away relies on the relationship between fixed nominal debt, income growth, and purchasing power. However, as noted in debates around private debt, it isn't a guaranteed safety net for individual borrowers today.
Here is how the mechanics actually work, along with why it often fails in practice:
How "Inflating Debt Away" Works (The Ideal Scenario)
When you borrow money, your debt principal is fixed in nominal terms (e.g., a $500,000 loan). If economy-wide inflation occurs:
-
Wages and Prices Rise: Over time, general prices and wages increase. If your wage rises alongside inflation—say from $80,000 to $160,000—your nominal income has doubled.
-
Fixed Debt Burden Shrinks: Because your debt principal remains fixed at $500,000, that debt now represents a much smaller percentage of your annual income.
-
Real Value Drops: The purchasing power of the dollars you use to repay the lender is worth significantly less than the dollars you originally borrowed. In effect, the real burden of the debt diminishes without you having to pay down extra principal.
Historically, governments with large national debts are the primary beneficiaries of this mechanism, as they can issue long-term fixed bonds while allowing inflation to reduce the real value of their public debt relative to GDP.
Why It Doesn't Always Work for Individuals Today
In practice, individual households—especially modern mortgage holders—often find that inflation makes debt harder to manage, not easier.
-
Central Bank Responses (High Interest Rates): Modern central banks (like the RBNZ or Federal Reserve) combat high inflation by raising policy interest rates. If you have a variable or short-term fixed mortgage, rising interest rates immediately increase your debt-servicing costs (interest repayments), offsetting any theoretical benefit of inflation.
-
Wages Lag Inflation: For debt to be inflated away, nominal wages must keep pace with or exceed inflation. During many inflationary periods, real wages fall—meaning living expenses go up faster than paychecks, leaving less money available to service existing debt.
-
Asset Price Inflation vs. Productivity: If debt was taken on during low-interest environments when asset prices (like housing) were high, high inflation accompanied by high interest rates can cause asset values to stagnate or drop while borrowing costs soar.
While inflation fundamentally reduces the real purchasing power value of a fixed sum of money over long periods, it only "inflates debt away" for a borrower if their income grows with inflation and their interest rate remains lower than the inflation rate.
As long as the debt sevicing costs are covered by the home owner(s), who cares? It's a long term commitment. If interest rates go back up above 6%, then there will likely be a pull-back in debt levels. 20% deposit requirements may be enforced.
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.