New report warns about a rising number of people facing difficulty as interest rates increase
Finance Minister Grant Robertson is urging people to talk to their banks if they fear mortgage distress.
The advice came as the Reserve Bank’s financial stability report warned about an increasing number of people facing difficulty as interest rates rise.
Read more: Mortgage holders face more mortgage pain as interest rates rise – ANZ
“There is the potential for some borrowers that they will have mortgage stress in the future,” Robertson told NZ Herald. “That is the reality of the situation we’ve got with interest rates – I endorse the call for the Reserve Bank for those banks and people to talk to each other. Being in negative equity for a short time when you own a house is not uncommon. A house is an asset you hold for a long period of time. Obviously for those people who borrowed in the last couple of years at very low rates, but borrowing very high amounts, as those interest rates rise some pressure falls upon them.”
The report also showed “overall the New Zealand economy is stable and is one that is continuing to deliver good quality jobs,” he said.
According to the Reserve Bank report, around 2% of mortgage lending was in negative equity as of September, but that could climb to about 7% if house prices were to decline by another 10%.
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If house prices plunged by a further 30%, the percentage of mortgage lending in negative equity would rise to about 38%.
Nicola Willis, National’s finance spokeswoman, said the report warned of “mortgage mayhem.”
The report’s warnings of rising negative equity and the stress placed on first-home buyers were “gravely concerning and portray a bleak future for Kiwi mortgage holders,” Willis said.
“I worry particularly about recent home buyers whose prospects look particularly grim,” she said, adding that it showed the need for “strong, careful economic management and fiscal responsibility.”
Julie Anne Genter, the Green Party's finance spokeswoman, said the report’s main takeaway was that “rising interest rates will make it harder for people to pay the bills – all while boosting bank profits.”
“The government needs to step in and tax excess corporate profit and use the money to provide vital support for struggling families,” Genter said.
The latest figures from Stats NZ revealed another quarter of near-record unemployment, which was at 3.3%, and average hourly earnings rose by 7.4%.
This meant that over that quarter, hourly earnings grew by more than the rate of inflation, after a period where consumer price inflation increased faster than wages.
Robertson said this was “a very positive outcome.”
“Unemployment is low, more people than ever are in work and wages are growing faster than inflation to help them meet cost of living pressures,” he said. “This is something worth celebrating and shows our economic plan is working for New Zealanders despite the challenging global environment.”
Christopher Luxon, National leader, said people were actually left poorer by the economy, according to the labour cost index (LCI).
Wage inflation, measured by LCI, was 3.7% in the year ended September 2022 – way behind inflation, which was 7.2% over the same period.
“It’s no surprise Kiwis are feeling crushed by inflation – prices have now risen faster than wages for nine quarters in a row,” Luxon said.
David Seymour, Act leader, said the low unemployment rate masked an immigration crisis.
“The country is missing about 140,000 people based on normal migration trends,” Seymour told NZ Herald. “That’s why there is help wanted signs and businesses grinding to a halt from Cape Reinga to the Bluff.”
