The Reserve Bank of New Zealand (RBNZ) has released data on new mortgage commitments, which shows that mortgage demand continues to plummet in response to the RBNZ’s aggressive interest rate hikes.
As illustrated in the next chart, annual mortgage growth collapsed by 33% in the year to September, with the annual volume of new mortgages advanced also falling by around one quarter:
From boom to bust.
The collapse in mortgage demand comes as separate RBNZ data shows that aggregate mortgage interest charged soared 38% over the year to September 2022:
The reason is obvious: the RBNZ’s monetary tightening is among the most aggressive in the world:
And this sharp lift in the official cash rate has pushed one and two year fixed mortgage rates, which dominate the New Zealand mortgage market, to more than double their pandemic lows:
Aggregate interest repayments will continue to soar as the RBNZ lifts rates further, and as the tidal wave of borrowers on cheap fixed mortgage rates are forced to refinance. Indeed, according to Westpac, around one quarter of mortgages will come up for re-pricing by the end of this year with a further quarter by mid-2023:
This is an ominous sign for New Zealand house prices, which have already plunged by nearly 13% from peak. It is even more worrying for New Zealand’s economy, given the combination of falling wealth (house prices and shares) combined with sharply rising mortgage repayments will slash household consumption – the economy’s biggest driver.
Prime Minister Jacinda Ardern must be shaking in her boots given the New Zealand economy faces recession just in time for next year’s national election. The timing couldn’t be worse.
