Expert warns about impact on interest rates
Mortgages reaching at least a million are becoming more common across New Zealand – compelling an expert to warn about the impacts of million-dollar mortgages on interest rates.
New data from property website Homes.co.nz showed that 15% of all sales in New Zealand were for more than $1.25 million in the past 12 months.
In Auckland, 37% of all sales were for more than $1.25 million. For 2021 alone, 57% of Auckland’s sales were for more than $1 million, compared to 33% five years ago, according to CoreLogic.
Homes.co.nz chief data scientist Tom Lintern said a significant number of people had taken on a $1 million mortgage, assuming a 20% deposit.
“Not all buyers at that price point would be borrowing to that extent, but it is safe to assume that many have entered the market at this level of debt,” Lintern said, as reported by Stuff.
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According to the Reserve Bank of New Zealand (RBNZ), $832 million of total borrowing of $8.9 billion in May 2021 went to people with a deposit of less than 20% – up from $515 million in May 2020 and $707 million in 2019.
Mortgage broker Glen McLeod revealed that he has processed several $1 million mortgages each month.
“Since some of the average purchases on the North Shore are around $1.5 million to $1.8 million, this is becoming more and more regular,” McLeod said, as reported by Stuff. “Typically, it is not your first-home buyers but more likely second or third-home buyer that is looking to upgrade their property. Also seeing quite a bit in the rural lifestyle area for these types of purchases.
“Income has to be extremely good and, depending on the lender that we go to, if the property purchase is over $2 million to $2.5 million, a valuation may be required.”
Read more: CoreLogic delivers latest data on New Zealand property prices
Lintern warned that people with large mortgages might take a hit from rising interest rates.
Homes.co.nz put the median price in Auckland at $1.21 million in July. Therefore, a 20% deposit would require a mortgage of $968,000.
Lintern analysed that monthly repayments would be $5,282 a month if rates rose to the average standard rate in January 2020 (4.32%), and $6,148 a month if rates rose to the average standard rate in January 2015 (5.85%).
It would be the same in the other main centres, where repayments would increase by more than $1,000 a month if rates rose to the January 2015 rate. For example, Wellington’s median price of $1.13 million would increase monthly repayments from the current rate of $3,916 to $5,742 at the 2015 rate, according to Lintern.
By contrast, Lintern expects the smallest increase of monthly repayments in Christchurch due to its $596,000 median price, the lowest among the main centres. However, he noted that repayments would still increase from the current price of $2,065 to $3,028.
