The Reserve Bank of New Zealand (RBNZ) has been one of the most aggressive central banks in the world with respect to monetary tightening, lifting its official cash rate a whopping 4.0% since October 2021:
As illustrated in the next chart, these aggressive interest rate hikes from the RBNZ have lifted the total amount of mortgage interest paid by New Zealand households by 53%, from $2,323 billion in Q3 2021 to 3,549 billion in Q4 2022:
The mortgage burden will increase much further in 2023. Not only is the RBNZ likely to lift the cash rate even higher, but “more than half of all mortgages will come up for re-fixing in the next twelve months, and many borrowers will face large increases in their debt servicing costs”, according to Westpac:
“For example, a borrower who fixed their mortgage at 2.7% in 2020 will now face refixing at a rate over 6%”, Westpac notes.
New Zealand house prices have already fallen 15% from their November 2021 peak, and a peak-to-trough decline of more than 20% is now looking conservative.
