The number of mortgagee sales has climbed by 25% over the past year, with further rises expected
The number of mortgagee sales has climbed over the past year and was tipped to further rise as households face increasing financial pressure.
Trade Me data showed a 25% rise in the number of properties listed as mortgagee sales on the site last month compared to the same period last year.
Gavin Lloyd, Trade Me Property sales director, noted, however, that the percentage was based on a very low number, with only 27 mortgagee listings on the site at the time he provided the data, Stuff reported.
Twenty-five mortgagee sale listings were on Trade Me on Wednesday, but the surging interest rates could mean further rises could be expected on the site in the future, Lloyd said.
According to CoreLogic figures, which go back to early 2005, mortgagee sales also increased this year, although the rise is off the back of record lows.
In the first quarter of 2022, there was a 17-year low of just six mortgagee sales nationwide. That figure increased to 20 in the second quarter, then to 28 in the third quarter.
But the figure remains significantly down on prior years. In the July quarter of 2019, there were 65 – that was the lowest number of mortgagee sales in any quarter for the decade prior to COVID, when the number dipped to 42 in the April 2019 quarter, Stuff reported.
Mortgagee sales were highest in the wake of the global financial crisis (GFC), peaking at 768 in the July 2009 quarter. From 2009 to 2012, the lowest quarterly amount was 357 at the start of 2011.
Kelvin Davidson, CoreLogic chief property economist, said the number of mortgagee sales would likely rise, especially if unemployment increases next year, though probably not to the level seen in the GFC.
In contrast to the GFC, when mortgagee sales were already much higher than they are now, the current numbers are coming off a particularly low level, Davidson said.
“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 interest-only loans or lengthening the term of the loan, they will look at to try and avoid one,” he said.
And while the surging interest rates are putting pressure on homeowners, it’s really the job losses and the very low unemployment that’s triggering mortgagee sales, Davidson said.
“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,” he told the news agency. “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.”
Davidson said it was worth considering that a fair percentage of households were mortgage-free, and a reasonable chunk of homeowners were ahead on their mortgage repayments, according to recent ANZ figures.
“That could serve as a bit of a buffer in a time of increasing financial pressure,” he said.
A spokesperson for ANZ, the country’s largest bank, said its most recent data showed that more than a third of its customers are ahead on their home loan by six months or more.
“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,” she said.
The spokesperson also noted, however, that with many people rolling off fixed home loans and onto higher rates over the coming year, some will be under financial pressure.
Gareth Kiernan, Infometrics chief forecaster, said the higher interest rates will be tough for many who will roll off a rate of around 2.5% to one of around 7%.
“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,” Kiernan said. “Anyone who had a mortgage prior to 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.”
He said job losses would be a key driver behind a rise in mortgagee sales, as this has a bigger impact on people’s ability to make repayments, and an increase in unemployment was expected.
“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,” Kiernan said. “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.”
Bryan Thomson, Harcourts managing director, said there would always be some mortgagee sales no matter how strong the market was, usually due to factors outside the market, such as financial stress from a business failure, or personal circumstances, such as divorce or a death, Stuff reported.
“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,” Thomson said. “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 don’t like mortgagee sales, though, and will fight tooth and nail to prevent people from falling into such a situation, so that could limit the numbers, he said.
Roger Beaumont, New Zealand Bankers’ Association chief executive, said it was not surprising to see mortgagee sales starting to increase in the current climate.
“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,” Beaumont said.
Mortgagee sales were a “last resort,” however, he said, and were also rare, representing only a tiny fraction of the roughly 1.25 million home loans in New Zealand.
“Another good thing is the cushion many borrowers built in when interest rates sank to historic lows,” Beaumont said. “In June this year, just over 45% of people with a home loan were ahead on their repayments.”
Beaumont said there are several ways banks can help see customers 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,” he told Stuff.
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