A painful reality! The figures reveal how big a challenge homeowners will face when refixing their mortgages in the second half of the year

In previous YIJU New Zealand articles, we have repeatedly expressed concern for the many New Zealand households that will have to accept very high interest rates when their fixed mortgage terms expire in the second half of this year, severely affecting their finances. The vast majority of New Zealand mortgage borrowers prefer to fix their loans for 1–2 years, meaning the ultra-low rates they secured during the COVID pandemic are about to expire. With living costs already having risen substantially, these households will face further repayment pressure this year.

 

Recently, New Zealand National Party deputy leader Nicola Willis described the issue as a ‘mortgage time bomb’. Many economists are also closely watching how it develops. According to New Zealand’s 2018 Census, the household home ownership rate was 65.5%, while 35.5% of households rented, and around 33.1% of households had a mortgage. YIJU has also compiled some key figures to help illustrate the seriousness of the problem.

 

 

1,260,000

 

According to the latest New Zealand Bankers’ Association figures, 1,090,000 people nationwide hold mortgages, with these customers holding a total of 1,260,000 mortgage loans.

 

3.17% versus 7.59%

 

In June 2021, the standard one-year fixed mortgage rate published by the Reserve Bank of New Zealand was 3.17%, the lowest one-year fixed rate in its records dating back to 2005. Now, the standard one-year fixed rates offered by New Zealand’s five major commercial banks—ANZ, ASB, BNZ, Kiwibank and Westpac—have risen to between 7.59% and 7.89%.

 

10%

 

Around 10% of mortgage holders currently have floating rates. Floating rates are usually considerably higher than fixed rates, and those at many commercial banks, including ANZ, ASB and Westpac, have now soared to 8.64%.

 

50.4%

CoreLogic’s head of property research, Nick Goodall

 

According to Reserve Bank of New Zealand data, around 50.4% of mortgages will reach the end of their fixed terms over the next 12 months and need to be refixed at higher rates. CoreLogic head of property research Nick Goodall said this figure did not tell us when those loans began: it could have been 24 months ago or 12 months ago. This means a substantial proportion of borrowers may already have refixed at higher rates, only to have to refix again at even higher rates over the coming half-year.

 

35%

 

An ANZ spokesperson recently said around 35% of the bank’s customers currently had mortgage rates below 4%, but around 55% of those customers’ fixed terms would expire this year. The spokesperson also said many customers had taken advantage of low rates to repay their loans ahead of schedule, with around 1/3 of customers at least 6 months ahead on their repayments.

 

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Westpac general manager of consumer banking and wealth Mike Norfolk said that in the 6 months to November this year, around 12% of home loans would move from ultra-low fixed rates below 4% to higher rates.

 

An ASB spokesperson said a large number of customers had refixed their mortgages at higher rates over the past 18 months. She said 1/3 of ASB customers were now paying interest rates close to the market peak the bank had previously forecast.

 

$15,600

 

Goodall said the average one-year rate across the five major banks this year was 6.9%. For someone who may have fixed at 2.6% two years ago, repayments would rise by NZ$120 a fortnight, or NZ$3136 a year, for every NZ$100,000 of debt. For a NZ$500,000 loan, that would mean an extra NZ$15,600 in annual repayments.

 

25%

 

In its Financial Stability Report published in May, the Reserve Bank of New Zealand found that 25% of current mortgages originated in 2021, with around 20% of those borrowers being first-home buyers. These buyers could be hardest hit because they bought when house prices were at their highest and interest rates at their lowest. Refixing at higher rates would mean a sharp increase in their repayments.

 

1.32%

 

According to credit reporting company Centrix, the mortgage arrears rate rose to 1.32% in May, its highest level since March 2020, compared with just 1.27% in April. Centrix said 19,500 mortgage accounts currently had overdue payments, up 34% year on year, as more borrowers faced the challenges of rising interest rates and a deteriorating economic environment.

 

0.5%

 

 

BNZ general manager of consumer lending Martin Elliott said the bank had not seen a significant increase in customers requesting additional assistance or falling behind on repayments. BNZ’s loan arrears rate was currently very low, at less than 0.5%. Most customers were in good financial shape, and many were ahead on their mortgages, having chosen to accelerate repayments while interest rates were low. Although rates had now risen, these customers had built a buffer to help them through difficult times.

 

An ASB spokesperson said this was a very challenging time for many customers with home loans, but the number who actually needed the bank’s help was low, well below levels seen during the global financial crisis and the COVID pandemic.

 

5.5%

 

The Reserve Bank of New Zealand’s official cash rate (OCR) currently stands at 5.5%. Following its final rate increase in May, the Reserve Bank made clear that the OCR had reached the peak of the tightening cycle. But does this really mean commercial banks’ mortgage rates, and the OCR at the Reserve Bank’s next Monetary Policy Statement, will not rise further? We will wait and see.