Mortgage monster ravages New Zealand housing

The latest residential mortgage lending data from the Reserve Bank of New Zealand (RBNZ) revealed that one-third of mortgages taken out in 2021 were at debt-to-income (DTI) ratios above six, up from 19% in 2019 and 25% in 2020:

New Zealand high-risk mortgage lending

High-risk mortgage lending boomed in 2021 across New Zealand.

In dollar terms, $36.2 billion worth of mortgages were originated at DTI ratios above six in 2021, compared with $12.9 billion in 2019 and $19.4 billion in 2021.

Last week, the RBNZ released its half-yearly Financial Stability Report, which included the next chart showing how “the recent increases in mortgage rates mean that buyers currently entering the housing market face the prospect of significantly higher debt servicing burdens than similar buyers in prior years”:

Debt servicing burden for New Zealand home buyers

Recent buyers face a punishing debt burden as interest rates rise.

The RBNZ also warns that “recent buyers with limited equity are particularly vulnerable to house price declines” and that debt servicing costs will soar when fixed rate mortgages originated over the pandemic reset at much higher rates:

Debt servicing costs have increased as a share of household disposable incomes… Debt-servicing costs will increase significantly as current fixed-rate mortgages reprice over the coming year. Some recent mortgage borrowers are vulnerable and could face difficulty servicing their debts…

Looking ahead, rising interest rates are expected to increase households’ debt servicing burden, particularly those who have recently borrowed at high debt-to-income (DTI) ratios…

Recent buyers are the most vulnerable to rising interest rates or declining house prices…

Average mortgage rates

The average interest rate on the aggregate stock of mortgage lending remains low, as many borrowers fixed their mortgages when low interest rates were on offer over 2020 and early 2021, especially at shorter terms.

However, over half of the current stock of fixed-rate lending is due for refixing this year, with some borrowers facing potentially large increases in their debt servicing costs, particularly those who have borrowed at elevated DTI ratios. Rising living costs, which are reducing real household disposable income, may also create stress for mortgage borrowers…

A separate REINZ survey of licensed real estate agents also shows that a record 81% of agents reported that home buyers are most concerned about rising interest rates:

Main concern of property buyers

Home buyers most concerned about rising interest rates.

With most economists and financial markets expecting another 150 basis points of rate rises, many recent Kiwi buyers now face the depressing prospect of severe mortgage stress alongside negative equity as sky-high house prices plunge back down to earth.

Unconventional Economist
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  1. If wholesale market forward rates realise, then one year fixed mortgage rates are heading to around 6.5% in year. At that point, the wheels fall off…

      • Well, right now the one year swap one year forward is around 4.5 percent, and the historical spread of rhe one year fixed mortgage rate to the one year swap over the past decade is about 2.2 percent. So if the historical bank margin realises, and the wholesale forward market rate realises, then we actually get to about 6.7 percent. So that’s kind of what is priced by the market.

        Obviously, that can happen, but I think if it does, the housing market is in horrible trouble. Maybe a 50:50 chance it happens? No one can really say.

  2. pfh007.comMEMBER

    There is a strange view going around that because central banks were lunatics and cuts rates to near zero and induced massive household indebtedness that they have NO choice but to ignore inflation if inflation proves persistent because supply lines remain stretched or wages in Australia and elsewhere grow now China’s workforce size has peaked.

    That belief is inconsistent with the traditional preference of conservatives and neoliberals to prioritize inflation control above pain for households.

    If inflation persists the odds are short that the RBA will raise rates significantly more than expected and it will be the job of fiscal policy to provide assistance if any to those foolish households who bit off more than they can chew.

    And that assistance is likely to be miserable if the gas lighter in chief is re-elected.

    • The last bout of good inflation was 40 yrs ago. And yes we knew of it but it wasn’t rammed down our throats as such.
      I’m wondering if the hyper news / information / every opinion age we are now in changes the dynamic. Scomo (and probably Albo) tend to react to the loudest screech and the current news cycle is nothing but inflation.
      They only look at the next election cycle and 3 yrs is too short. It’ll be kitchen sinks I reckon. Albo will be shit!ng going into this, that he’ll be a one term wonder.

      • ErmingtonPlumbingMEMBER

        The investor class has far greater concentrated media ownership and control of the narrative today than 40 years ago.
        They are happy for decades of rapidly raising asset price inflation and expanding GDP through that as long as they are the ones capturing all, or most, of that Growth.
        But when working class plebs start sticking their hand out and asking where’s my share cnt inflation is all of a sudden a problem that needs to be delt with, for the “greater good”.
        The “wage inflation is bad’ is not a new game,

        I’m wondering what the 21st century version of Malcolm Fraser’s “Wage Pause” going to look like.

  3. I’m not sure that it’s about property now.
    With petrol at near $3.50 per litre yesterday, any further fall in the NZ$ is going to cripple what’s left of our domestic economy.
    In the name of stability, the RBNZ will have no alternative to hiking interest rates to stem that fall.
    The classic rock and a hard place awaits New Zealand property owners, who are now on the sidelines of a fragile economy with a median wage of NZ$60k p.a.

  4. Hugh PavletichMEMBER

    A review of things you need to know before you go home on Wednesday; TD rate changes, house-building progress, more concrete, more immigrants, more tax, swaps slip, NZD lower, & more … David Chaston … Interest Co NZ

    … extracts …

    The speed of Auckland’s new-house building is evident in new data out today recording the amount of ready-mixed concrete poured in the March 2022 quarter. It reveals that in the twelve months to March, a record high 4.581 mln m3 was delivered to construction sites nationally, surpassing the pandemic-recovery-induced level in the year to June 2021. The big gainer was in Auckland where almost +13% more was delivered in Q1-2022 than Q1-2021. In Wellington, there was a fall of -12%, and in Christchurch a rise of +5.7% on that same basis.

    The Government has announced a faster re-opening of the border. It will now be fully open from August 1, 2022, two months earlier than previously signaled. At the same time it is to operate an immigration Green List, a set of occupations, geared towards the construction and healthcare industries, which will give migrants a new pathway to NZ residency. They also announced visa extensions for around 20,000 migrants already in the country to ensure skilled workers stay here.
    A Green List of occupations, geared towards the construction and healthcare industries, will give migrants a clear pathway to NZ residency … Greg Ninness … Interest Co NZ

  5. Hugh PavletichMEMBER

    New Zealand; Broadcaster Paul Henry on Air New Zealand … and our dumb and degenerate political and public service culture …

    … Essential viewing …

    Paul Henry bashes Air New Zealand for ‘behaving in an entirely entitled manner’ … Newshub

    Paul Henry is calling on Air New Zealand to up its game after writing a scathing critique of the national carrier, saying he’s no longer a loyal customer.

    He was interviewed about a column he wrote for the NZ Herald by AM host Melissa Chan-Green on Wednesday morning after the article was published on Tuesday.

    Henry’s column called for Air New Zealand to replace its chief executive and chair and called for Kiwis to make no excuses for the national carrier.

    “All I really want is for the chair and the CEO to acknowledge that they have dropped the ball, they are dropping many balls and to apologise to their owners – you and me,” Henry told AM. … read more via hyperlink above …

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