Many NZ homeowners would seek longer loan terms, cut energy spend on higher rates: BNZ

Wednesday 12th April 2017

Almost three-quarters of New Zealand homeowners are expecting their mortgage rates to rise this year and while many are fairly sanguine about a moderate increase, if it goes too high a fifth would push out the term of their loan and a third would cut back spending on utilities, Bank of New Zealand research shows.

Homeowners have enjoyed historically low mortgage payments with New Zealand's official cash rate at a record low 1.75 percent. However, while the central bank has indicated there won't be any increases until mid-2019 economists are expecting rates to rise next year. Lenders have already signalled mortgage rates will rise irrespective of where the benchmark rate goes as their own credit growth and new regulatory rules have seen them turn to more expensive overseas wholesale funding lines.

The BNZ's latest Financial Futures Research shows 70 percent of those surveyed are expecting higher mortgage rates this year. An average mortgage in New Zealand is about $275,000, and if the current two-year classic interest rate of 4.79 percent were to lift by 1 percentage point, fortnightly repayments would increase by $71-to-$80, BNZ said. The bank's online mortgage calculator indicates the homeowner is currently paying around $665 a fortnight at 4.79 percent.

About 17 percent of respondents said they could absorb an $80 increase without noticing any difference, while only 10 percent said that would be the case with a $120 increase.

Of those surveyed, 54 percent said they would offset an $80 increase by spending less on "fun things" like eating out or entertainment while 57 percent said the same for a $120 increase. Some 37 percent said they would spend less on clothes and shoes if their mortgages rose by $80 while 42 percent that would be the case if mortgages lifted by $120.

Regarding overheads like petrol, heating, power and insurance 20 percent said they would reduce spending if mortgages lifted by $80 while 30 percent said that would be the case if payments increased by $120.

Only 10 percent, however, said they would look to extend the term of their mortgage with an $80 increase. However, it was particularly concerning that 20 percent would look to extend the term of their mortgage if their repayments increased by $120 or more as "this is only going to set them back in the long term," said Paul Carter, BNZ's director of retail and marketing.

The research was conducted by Colmar Brunton and involved online interviews with 2,000 people from Feb. 15 to Feb. 24.

For BNZ and its $35.7 billion housing loan book as at Dec. 31, the figures imply it could hike interest income by about 7 percent, or $270 million, a year if fortnightly payments increase by $80 without causing their 130,000 or so customers too much stress.

(BusinessDesk)

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