Mortgage stress means taking two jobs

Homeowners owing $2m or more surge as rising interest rates hit and some drive for Uber to make payments

The number of Kiwi homeowners with mortgages of at least $2 million has more than doubled in the last four years, according to new data supplied to OneRoof.

Figures from Centrix credit bureau show there were 14,188 borrowers in January with $2m-plus mortgages — up from 6441 in January 2020.

And the number of borrowers with $1m-plus mortgages jumped 100 per cent over the same period, from 53,317 to 107,538.

The surge in seven-figure mortgages comes against a backdrop of rising interest rates and more financial pressure on Kiwi homeowners.

Centrix warned borrowers with $2m-plus home loans were 21 per cent more likely to go into arrears than those owing smaller sums to the bank.

Repayments on a $2m mortgage on a standard two-year fixed rate of 7.48 per cent (paid over 25 years) are $6242 a fortnight, or $162,292 a year. Recent borrowers would be spending an extra $60,800 a year in interest compared to those who those who took out similar-sized loans in 2020.

One mortgage broker told OneRoof the jump in rates had meant that high-earning mortgage holders were driving for Uber Eats in their spare time to meet their repayments.

Unsurprisingly, the vast majority of $2m-plus mortgage-holders (74 per cent) were from Auckland, with Wellington accounting for 9 per cent, Waikato 5 per cent and Christchurch 4 per cent. For $1m-plus mortgages the breakdown is: Auckland 64 per cent, Wellington 11 per cent, Waikato 7 per cent and Christchurch 6 per cent.

Centrix managing director Keith McLaughlin said the figures covered total mortgage exposure per borrower, not per property, and included a percentage of bridging loans, but many $1m-plus and $2m-plus mortgages were for individual properties.

“There was a blip in the market post-Covid, when prices went through the roof and interest rates were very low. People believed they could afford a $1m or $2m mortgage based on their income and outgoings. As a result, there was a significant amount of heavy commitment.”

Also contributing to the 100 per cent jump in large mortgages was the demand for holiday homes and rental properties post-Covid. McLaughlin said over the first two years of the pandemic, Kiwis were purchasing holiday homes, buying rental properties, helping children into their first home or borrowing against property to prop up businesses.

“A lot of businesses are struggling at the moment and have done so since Covid. A lot of those business owners have borrowed against their houses to support their business to survive.”

However, rising interest rates led to an increase in the number of homeowners in mortgage stress last year.

“It is likely that many of these $2m-plus borrowers are using their mortgages to fund multiple properties or their business and are becoming increasingly stressed,” McLaughlin said. Mortgage arrears hit a four-year high in December 2023 with more than 20,800 mortgage accounts past due — up 21 per cent from the same period a year prior. McLaughlin estimates the proportion of home loans in arrears for January and February this year will be even higher.

“We have figures coming out next week which will give an indication as to what’s happening as far as arrears are concerned. But certainly there’s a lot more stress in the marketplace and in the mortgage sector in particular. “Post-Christmas is always a difficult time. There’s no reason why [the number of mortgages in arrears] should come down, but there are lots of reasons why they should go up.”

McLaughlin said while the number of both $1m-plus mortgages had doubled, those with the $2m-plus mortgages were struggling the most.

“The likelihood of default for mortgages valued $1m to $2m is no different to those who hold mortgages less than $1m. But, for those borrowers who have $2m-plus mortgages, the likelihood of default is 21 per cent higher.”

Aseem Agarwal, a partner at mortgage advisory firm Global Finance, said despite changed lending conditions and high interest rates, local buyers were still finding ways to service $1m and $2m loans.

“Buyers find ways to stretch themselves to get over the line,” he said.

Whether the loan size was $500,000 or $2m, banks would still check a borrower’s ability to pay, and go through household income, expenses, and the stability of incomes, line by line.

Agarwal said he had recently arranged a $2m mortgage for a couple with a combined income of $450,000, where one partner was still working overseas.

But financial pressures meant some borrowers needed side-hustles to meet their financial commitments. Agarwal cited a couple building a home on a section they own. They had to make payments on the section loan and a separate construction loan as well as pay rent.

“They are both in good managerial positions and have $260,000 combined income. But to be able to afford to pay the rent and the mortgages on the section and build, they both have to do a side-hustle. Both are doing Uber Eats.”