Kiwi mortgage mugs brace for interest rate pain

Yesterday, the Reserve Bank of New Zealand (RBNZ) shocked economists with a 0.50% increase in the Official Cash Rate (OCR) to 1.50%.

The RBNZ described the over-sized hike as “bringing forward” monetary tightening, stating it “remained comfortable” with OCR outlook outlined in its February Monetary Policy Statement (MPS).

The MPS sees the OCR rising to 2.2% by the end of this year and by 3.3% by the end of 2023.

New Zealand floating and fixed rates had already risen sharply prior to this announcement, as illustrated in the next chart:

New Zealand mortgage rates

New Zealand mortgage rates have already risen sharply.

Specifically, floating mortgage rates have risen around 0.6% from their June 2021 low, whereas both the 3-year and 5-year fixed mortgage rates have surged by around 1.9% from their lows.

The next table summarises the impact of these actual and projected interest rate increases by comparing monthly mortgage repayments on the median priced New Zealand home at the trough of the interest rate cycle (i.e. June 2021) with repayments at the end of March 2022 and the projected increases outlined by the RBNZ. This analysis assumes that floating rates rise in line with the OCR.

New Zealand median mortgage repayments

Already, monthly mortgage repayments on the median priced New Zealand dwelling had risen by $520 between June 2021 and March 2022. They are projected to rise another $540 by the end of this calendar year and then by another $520 by the end of 2023.

So if these OCR forecasts come to fruition, then the typical Kiwi would pay $1,580 more in monthly mortgage repayments than the median Kiwi paid in June 2021 and $1,060 more than the median Kiwi paid in March 2022.

Mortgage repayments would climb even further in Auckland (by $1,421 a month) and Wellington (by $1,190 a month) between March 2022 and end-2023 owing to their higher median dwelling values.

Given that one-third of mortgages originated in 2021 were at debt-to-income ratios above six, a massive number of Kiwis are likely to fall into severe mortgage stress:

New Zealand mortgage debt-to-income ratios

Kiwis leveraged heavily into mortgages in 2021.

The bottom line is that New Zealand’s army of mega mortgage mugs are about to get a hard dose of interest rate reality.

If the RBNZ follows through with its OCR projections, then mortgage holders are be cruising for a bruising, house prices are facing sharp falls, and many recent buyers could be thrown into negative equity.

Unconventional Economist
Latest posts by Unconventional Economist (see all)


  1. Just extend the Duration?
    That next roll-over? Add another 20 years to the end date to ease the monthly pain.

  2. That first chart shows repayments increasing sharply and yet median house price remaining the same, they must be expecting to pull lots of levers, me thinks.
    (and Canada also went for a 0.5 rise last night)

  3. C.M.BurnsMEMBER

    I think it’s pretty clear that central banks are responding to the same data that the bond markets are, or perhaps are just responding to the bond markets themselves.

  4. Hugh PavletichMEMBER

    … and Canada today too …

    Bank of Canada increases policy interest rate by 50 basis points, begins quantitative tightening … Bank of Canada

    Spiraling housing prices are an ‘intergenerational injustice’, says Canada’s deputy PM … Leyland Cecco … The Guardian

    Chrystia Freeland, who also serves as the finance minister, says the issue is her top domestic concern amid affordability crisis … read more via hyperlink above …

    Pierre Poilievre on Twitter: “Big city gatekeepers …. VIDEO … Twitter

    • – “Intergenerational Injustice” ?????
      Blame all the women entering the workforce in the laast say 70 years.

    • Hugh PavletichMEMBER

      Kiwikaryn …

      … If only we had politicians in New Zealand and Australia who could articulate these housing issues like Canadian Conservative leader hopeful Pierre Poilievre … see my post above !

  5. Leith, for God’s sake, stop showing the 3 year fixed rate, almost no one fixes for beyond 2 years. What you should show is the 1yr fixed rate, that’s the sweet spot.

    As for your analysis, spot on. House prices are falling and its getting messy.

  6. Hugh PavletichMEMBER

    UPDATE … New Zealand … An interesting perspective on the Texas infrastructure funding ‘brawl’ …

    … For those with doubts about the United States economy … and in particular the Texas one (such as Stuff NZ journalist and Sri Lankan born Dileepa Fonseka opining on a subject … see below) … this just released and superb historical documentary of the Sri Lankan economy since colonial times is ‘essential viewing’ …

    The Economic Crisis in Sri Lanka … Asianometry … Youtube

    … It is just a matter for New Zealand to build on the massive political progress in getting the 2020 Infrastructure Funding and Financing Act in place … with every political Party supporting it … by making the amendments required so that it works … as originally intended …

    … It is up to New Zealanders themselves to decide whether they wish to be poor or prosperous …

    An interesting perspective on the Texas infrastructure funding ‘brawl’ …

    Texas-style Infrastructure Funding and Financing Act gets the Kiwi go-slow treatment … OPINION Dileepa Fonseka … Stuff New Zealand

    … extract …

    … Hugh Pavletich is the former co-author of the Demographia housing report, which measures New Zealand’s housing affordability against increasingly embarrassing multiples of income. He is a big advocate for MUDs, and summarises the IFF’s problems this way:

    “There was unanimous support, but … the general consensus was that the Act was far too complex.”

    The MUD process is a fast-moving Texas brawl, but the IFF is more intense, and requires sign-off from the Minister before an SPV can raise money. … read more via hyperlink above …

    Instead of the ‘fast moving Texas brawl’, possibly there are infrastructure funding models from Sri Lanka Mr Fonseka will inform us about in the near future …

    How Sri Lanka’s worsening crisis is making itself felt in New Zealand … Chamanthie Sinhalage-Fonseka … Stuff NZ

    … In a nutshell … New Zealand’s housing is currently around 9.0 times annual household incomes, Australia’s 7.0 and the United States (according to the US National Association of Realtors) around 4.0 times …