Borrowers get ahead as recession looms
One bank has 68 per cent of those with mortgages ahead on repayments
As Kiwis steel themselves for recession and rising interest rates, one major bank reports more than twothirds of clients with mortgages are ahead on their repayments despite high inflation and the cost-of-living crisis.
Others anticipate the pressure will come on as more people roll off fixed home loans and on to higher interest rates.
On Wednesday, the Reserve Bank lifted the official cash rate to 4.25 per cent — the highest since 2008 — and forecast a recession from mid-2023. Reserve Bank Governor Adrian Orr advised Kiwis to “think harder about saving rather than spending”.
Corelogic predicted the new rate track would push fixed mortgage rates towards 7 per cent or higher in the coming months, with 20 per cent of home loans in New Zealand fixed but due to reprice in the next six months.
Banks were offering cash-back incentives of up to $25,000 on some new home loans, however, experts advised people to figure out the “trade-offs” first.
Consumer NZ says mortgage repayments are New Zealanders’ top financial concern and, in the past three months, 51 per cent have changed their spending habits and cut down on expenses amid high living costs. Annual inflation hit 7.2 per cent in the September quarter, with the annual food price index up 10.1 per cent in October.
Banks told NZME small increases in repayments could help borrowers save money in the long term.
An ANZ spokeswoman said more than a third of customers were ahead on their home loan by six months or more and savings levels were holding.
She said while people were having to make tougher spending choices, the “vast majority of customers are in a sound financial position”.
Many, however, would roll on to higher rates over the coming year as their current fixed term ends, which may add to the financial pressure.
She said ANZ had two cashback offers on new home loans. First-home buyers could be eligible for a minimum cash contribution of $3000, or
homeowners who take out a new loan of $100,000 or more could get 1 per cent back, up to a maximum $20,000.
Westpac NZ acting general manager of consumer banking and wealth Jo Mcgregor said 68 per cent of its home-loan customers were ahead on mortgage repayments as of September.
“Even a small increase in repayments can knock years off your loan term.”
Kiwibank senior product manager Richard Mclay said more than 40 per cent of Kiwibank home loan customers were paying above their minimum payment amount.
When considering whether to pay down a mortgage, customers needed to think about their possible future requirements for those funds.
He said prior to interest rates starting to increase in mid-2021, customers were often refixing to a lower interest rate and opting to keep their repayments the same.
“The rate of interest customers will be paying on their home loan is probably around 6 per cent, and likely higher than the returns on deposits or investments, so it may make financial sense to pay down lending if there are any funds to spare. For customers who are currently fixed at a low interest rate, increasing payments now would reduce the loan balance before paying a higher rate of interest in the future.”
A BNZ spokesperson said 43 per cent of its total home loan book was ahead of scheduled repayments, with most on a 30-year term.
BNZ had a 1 per cent cashback on new classic or standard home loans of $300,000 or more, up to a maximum of $25,000.
Bank offers were subject to conditions, and all the banks offered borrowers options for topping up their repayments.
Last month New Zealand Bankers’ Association chief executive Roger Beaumont said nearly 46 per cent of people with a home loan were ahead on their repayments. From January to June 2022, customers took out 44,681 new home loans, with more than half issued to first-home buyers.
Craigs Investment Partners investment director Mark Lister said it was always better to pay off the mortgage as fast as possible. He said low interest rates had made it easier to “ramp up your payments and knock a hole in it . . . Hopefully, some people have taken advantage of the low interest rates by making lump sum payments or increasing their payments in recent years.”