More New Zealand borrowers are carrying huge mortgages! Delivering takeaways despite earning NZ$260,000 a year?

As mortgage interest rates have continued to rise over the past few years, New Zealand homeowners have faced mounting repayment pressure. Centrix has warned that borrowers with loans exceeding NZ$2,000,000 are 21% more likely to fall behind on repayments than those who owe banks smaller amounts.

At today's standard two-year fixed rate of 7.48%, assuming a 25-year loan term, repayments on a NZ$2,000,000 loan would be NZ$6,242 a fortnight, totalling NZ$162,292 over 52 weeks a year. Compared with taking out a similar-sized loan in 2020, borrowers would pay an additional NZ$60,800 in interest each year.

The research shows that the vast majority of borrowers with mortgages exceeding NZ$2,000,000 are in Auckland (74%), followed by Wellington (9%), Waikato (5%) and Christchurch (4%). Borrowers with mortgages exceeding NZ$1,000,000 are likewise concentrated in Auckland (64%), followed by Wellington (11%), Waikato (7%) and Christchurch (6%).

Comparison of the number of borrowers in arrears across different mortgage sizes in January 2020 and January 2024 (Source: Centrix)

Centrix managing director Keith McLaughlin explained that the figures cover each borrower's total mortgage exposure, rather than individual properties. They may include some bridging loans, although many mortgages above the NZ$1,000,000–2,000,000 range are loans against individual properties.

Valocity research shows that the national median purchase price for first-home buyers in the fourth quarter of 2023 was NZ$720,000. Auckland first-home buyers paid the most, with a median purchase price of NZ$935,000, while those in the South Island paid the least, at NZ$394,600.

Canstar research confirms the pressure of mortgage repayments. Its spokesperson Bruce Pitchers said that, as of December 2023, the average mortgage had increased by 2%, while repayments on those mortgages had risen by 15%. Canstar's latest Pulse survey shows that increasing numbers of New Zealanders are cutting spending on non-essential items to make ends meet, sometimes even reducing spending on essentials. Apart from the South Island and West Coast, mortgage stress is affecting homeowners in every region of New Zealand. Borrowers in their 30s are the hardest hit, with almost 60% of respondents aged 30 and over saying they have had to cut non-essential spending.

In December 2023, mortgage arrears reached a four-year high, with more than 20,800 mortgage accounts overdue and the number of bad debts up 21% on a year earlier. McLaughlin expects mortgage arrears rates in January and February this year to be worse than in December. He said the data showed that, although the number of mortgages exceeding NZ$1,000,000 had doubled, borrowers owing more than NZ$2,000,000 were struggling the most. The research shows that borrowers with loans of between NZ$1,000,000 and NZ$2,000,000 have a relatively low likelihood of default, as do those borrowing less than NZ$1,000,000. However, borrowers with mortgages exceeding NZ$2,000,000 have a default rate that is 21% higher.

Aseem Agarwal, a partner at mortgage advice firm Global Finance, said that persistently high mortgage rates had not dampened local borrowers' determination to pay off large mortgages, with many homebuyers seeking ways to extend their repayment terms. Meanwhile, whether someone applies to borrow NZ$200,000 or NZ$2,000,000, banks still assess their ability to pay and scrutinise the stability of their household income and expenditure item by item. Agarwal said he had recently secured a NZ$2,000,000 mortgage for a couple with a combined income of NZ$450,000. One partner was still working overseas, while the other worked locally.

Agarwal cautioned that substantial repayment pressure could force some borrowers to take on side jobs to meet their financial commitments. He gave the example of a couple building a house on land they owned, who had to repay a staged loan as well as pay a construction loan and regular rent. Both held management positions at well-known companies, with a combined household income of NZ$260,000. Yet to cover all their expenses, they had to deliver food for Uber Eats in their spare time to supplement their income.

Are you also feeling the pressure of a large mortgage? Share your thoughts in the comments and join the discussion about ways to ease repayment pressure.