There's an increasing concern that mortgagee sales could rise in 2022 as higher interest rates put pressure on household budgets
The number of mortgagee sales has hit a 15-year low but it could rise over the coming months as higher interest rates put pressure on household budgets.
The number of properties being sold as mortgagee sales has plunged in recent years, according to Corelogic data.
From the 777 mortgagee sales in the July 2009 quarter, it was down to just six in the January quarter of this year – the smallest number the data had ever recorded, Nick Goodall, Corelogic head of research, told Stuff.
“With stories of some developers being forced to sell now, we expect this may be a low point, as the impact of rising interest rates alongside increasing costs starts to bite,” Goodall said. “From a broader perspective we’ll be watching the labour market for the potential of mortgagee sales starting to become more prevalent with owner-occupiers or investors.”
Brad Olsen, Infometrics economist, said falling interest rates had been helping homeowners keep up with their repayments in recent years.
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“There’s definitely an increasing concern that mortgagee sales could rise in 2022, as interest rates have increased considerably at the same time as inflation is eating into household budgets,” Olsen said. “But at the same time, we wouldn’t yet expect to see a considerable number of mortgagee sales. Banks have become far more accommodating to work with customers to figure a path forward, and have also been testing new borrowers with considerably higher test mortgage rates to ensure that those who have mortgages, even at low interest rates, have been stress tested to see if they can handle higher interest rates like we’re now seeing.”
Olsen said people default on a mortgage as a last resort and that they were more likely to change other spending to keep up with their loan repayments, or try to sell before they were forced to, Stuff reported.
“Finally, the unemployment rate is low and employment is high – with no expectation that the labour market tanks, the feeling is that most households still have strong employment prospects, which should further stave off any need for knee-jerk mortgagee sales,” he said.
Shamubeel Eaqub, an economist at Sense Partners, said mortgagee sales would require a bank to “pull the pin” on a customer.
“Usually this takes a lot, such as loss of job (not yet a big risk), big increase in mortgage payments (very likely, given increases in mortgage rates and lots of fixed mortgages due to refinance soon), or reduced disposable income due to other living cost increases (happening due to increases in food, fuel etc.),” Eaqub told Stuff.
Eaqub said banks would consider other options first, including deferring payments, extending the term of the mortgage to make the repayments smaller, or allowing a borrower to make only interest payments.
“We don’t get mortgagee sales like it happened with jingle mail in the US during the Global Financial Crisis,” Eaqub told Stuff. “This is because banks in NZ have recourse to other assets and income, whereas the US had non-recourse loans which were secured only against the mortgaged house. Bottom line is that we are moving from very easy borrowing conditions to harder ones.”
Roger Beaumont, New Zealand Bankers’ Association chief executive, said a mortgagee sale would be “very much” a last resort.
“Banks work closely with customers through a range of options before considering a mortgagee sale,” Beaumont told Stuff. “Some people may choose to sell the property themselves before it gets to a mortgagee sale. Good communication between you and your bank is essential in these cases. In the rare event they happen, mortgagee sales are most likely to occur when the customer fails to respond to the bank about the situation. It’s also useful to remember that mortgagee sales include investment and commercial properties. The timeframes around all this will depend on the circumstances involved and the relevant legislative requirements.”
