Mortgagee sales on the horizon
Mortgagee sales have increased over the past year, and the number is expected to rise further as households come under more financial pressure, writes Miriam Bell.
Trade Me figures show the number of properties listed on the site as mortgagee sales was up 25% last month from the same time last year.
Trade Me Property sales director Gavin Lloyd says it is important to note the percentage is based on a very low number, with just 27 mortgagee listings on the site at the time he provided the data.
There were 25 mortgagee sale listings on Trade Me on Wednesday. But rising interest rates could mean further increases in the number of mortgagee sales on the site in future, he said.
A mortgagee sale is when a lender sells a property to recover the money it is owed.
CoreLogic figures, which go back to early-2005, also show an increase in mortgagee sales this year, although the rise is off the back of record lows.
In the first quarter of this year, there were just six mortgagee sales nationwide, a 17-year low. That number went up to 20 in the second quarter, and 28 in the third quarter.
But the number remains significantly down on previous years. In the last July quarter pre-Covid (2019), there were 65, and the lowest number of mortgagee sales before Covid was 42 in the April 2019 quarter.
Mortgagee sales were highest in the years after the global financial crisis (GFC), and they peaked at 768 in the July 2009 quarter. Between 2009 and 2012 the lowest quarterly amount was 357 at the start of 2011.
CoreLogic chief property economist Kelvin Davidson says mortgagee sales numbers are likely to increase, especially if unemployment rises next year, but he doubts they will rise to the level seen in the GFC.
They are coming off a particularly low base level, in contrast to the GFC when mortgagee sales were much higher already than they are now, he says.
‘‘Bank attitudes have also changed, and every bank person I speak to says the same thing – no-one wants a mortgagee sale if it can be avoided, so there are other strategies, such as interestonly
loans or lengthening the term of the loan, they will look at to try to avoid one.’’
Rising interest rates put pressure on homeowners, but what really triggers mortgagee sales are job losses, and unemployment remains very low, he says.
‘‘The Reserve Bank is forecasting unemployment will rise to 5.7% by 2025, and that will inevitably lead to a higher number of mortgagee sales. It is just a question of how bad it might get.
‘‘But the labour market is particularly tight, which has contributed to the orderly unwinding of the market in this downturn so far, so unemployment is coming off a low base, too.’’
It is worth noting that a fair percentage of households are mortgage-free, and recent ANZ figures suggest a reasonable chunk of homeowners are ahead on their mortgage repayments, Davidson says. ‘‘That could be a bit of a buffer in a time of increasing financial pressure.’’
ANZ is the country’s largest bank, and its most recent data shows that over a third of its customers are ahead on their home loan by six months or more, an ANZ spokesperson says.
‘‘Despite the challenges of high inflation and rising interest rates, our data shows that people are paying down debt where they can and keeping up their savings habits.’’
But the bank recognises that many people will roll off fixed home loans on to higher rates over the coming year, and when that happens some will be under financial pressure, she says.
The key driver behind an increase in mortgagee sales will be job losses because loss of income has a bigger impact on people’s ability to make repayments. Gareth Kiernan
Infometrics chief forecaster
Higher interest rates will be difficult for many who roll off a rate of around 2.5% to one of around 7%, Infometrics chief forecaster Gareth Kiernan says.
‘‘It is still likely to only be a relatively small pool of homeowners who bought at the peak of the market with a low deposit who will end up under sufficient stress to force a sale.
‘‘Anyone who had a mortgage before 2020 has seen rates of 6.5% to 7% not that long ago, plus the size of their debt is likely to be much smaller than someone who bought recently, and many people paid down debt in the period of super-low rates.’’
The key driver behind an increase in mortgagee sales will be job losses because loss of income has a bigger impact on people’s ability to make repayments, and a rise in unemployment is expected, he says.
‘‘If you lose your job at a time of rising interest rates that is particularly hard, and it is a different situation to the GFC when interest rates were cut to stimulate the economy.
‘‘But if you are still employed, the CPI is at 7% and income growth is around 7%, so you have got some income increase to help a bit with additional financial pressures due to the rise in interest rates.’’
While mortgagee sales remain low, they are happening. A three-bedroom home in Pukekohe, Auckland, sold for $660,000 at an auction this week. On Homes.co.nz, it had an estimated value of $825,000.
Harcourts managing director Bryan Thomson says that no matter how strong the market is, there are always some mortgagee sales.
They are usually because of factors such as financial stress from a business failure, or personal circumstances, such as divorce or a death, he says.
‘‘There is no question that financial pressure is increasing, and people who roll off low fixed rates will feel it, but it is too early in this part of the cycle to tell if it will lead to a big upswing in mortgagee sales.
‘‘The question is how far financial pressure will push through into mortgage repayment issues, and how conservative lenders were when they were stress testing people when rates were low.’’
Lenders these days do not like mortgagee sales though, and they will fight tooth and nail to avoid putting people into such a situation, so that could limit the numbers, he says.
New Zealand Bankers’ Association chief executive Roger Beaumont says in the current climate it is not surprising to see mortgagee sales starting to rise.
‘‘Efforts to reduce inflation by raising the cost of borrowing are widely expected to have a recessionary effect, and that will have an impact on some households and businesses.’’
But mortgagee sales are a ‘‘last resort’’, he says.
They are also rare, and represent a tiny fraction of the around 1.25 million home loans there are in New Zealand.
‘‘Another good thing is the cushion many borrowers built in when interest rates sank to historic lows. In June this year, just over 45% of people with a home loan were ahead on their repayments.’’
Beaumont says banks work closely with customers and there are a number of ways they can help see people through tough times, depending on the circumstances.
‘‘Homeowners should maintain good, open communication with their bank, particularly if they are under any form of financial stress, as the sooner the bank knows, the more likely they are to be able to help.’’