Over half of total mortgage debt is due for repricing during 2022, bank says
Wednesday’s 25-basis-point OCR hike will cost the average mortgage holder an extra $825 a year, or $16 a week, according to Reserve Bank Governor Adrian Orr.
Read more: Reserve Bank lifts official cash rate back to pre-pandemic state
Orr mentioned the figures before Parliament’s Finance and Expenditure Committee on Thursday, where he appeared to talk about the bank’s latest Monetary Policy Statement.
Orr said “many things are hidden among the average,” interest.co.nz reported.
“There will be people who have significant equity in their homes, because they’ve been there for a very long time, so their wealth has gone up considerably,” Orr said. “There will be people who are very recent buyers and will have a very high level of debt relative to their income and they will find that additional cost harder. So there are unders and overs.”
OCR already increased 75 points since the central bank started tightening monetary policy, and is expected to climb steadily.
Read next: Mortgage rates to rise after OCR hike
Financial markets have also priced in hikes ahead of the RBNZ lifting the OCR.
A home loan borrower with a $200,000 mortgage, paying the average two-year fixed rate of 2.53% a year ago, would’ve had monthly repayments of $793. In comparison, someone paying the average two-year fixed rate today of 4.2%, will need to fork out $978 a month. That’s $2,200 more a year.
Meanwhile, someone with a $600,000 mortgage would’ve had monthly repayments of $2,380 a year ago, compared to $2,934 today – that’s $6,648 more a year.
RBNZ’s Monetary Policy Statement further discussed the impact of rising interest rates on mortgage holders.
“Relatively small upward movements in mortgage rates since November 2021 suggest most of the pass-through of higher wholesale rates happened before the November Statement,” it said. “The two-year interest rate swap rate increased nearly 100 basis points between the October Review and the November Statement, and this move was reflected in mortgage rates before the November announcement. Increases in the OCR will be passed through to the economy further as more fixed-term mortgages come due to reprice, and will do so at higher rates. Over half of total mortgage debt is due for repricing during 2022.”
The statement also noted that with more borrowers fixing at terms longer than one year in the past few months, they will face even higher interest rates than if they re-fixed at the same term, as the two-year and three-year rates have increased by around 20-30 basis points more than other shorter-term rates since October 2021.
Although mortgage rates are rising, they are still low relative to their longer-term history, interest.co.nz reported.
