Hikes in mortgage interest are going to hit homeowners in the back. Photo / Getty Images
Homeowners could take a “hell of a shock” as rising interest rates add tens of thousands of dollars to mortgage terms.
A loan of $ 700,000 which had fallen from 2.49%
at 3.65 percent over 25 years would result in interest of $ 367,515 compared to $ 240,497 – at the lowest rate – a jump of $ 127,018.
Loan repayments would drop from $ 723 per week to $ 821 over a fixed one-year term over the same periods.
Those numbers were calculated on the Get Sorted website, and Pensions Commission official Tom Hartmann acknowledged that rates would continue to fluctuate and the amounts had “risen dramatically.”
Reserve Bank deputy governor Christian Hawkesby told a financial conference on Tuesday that he would take “thoughtful steps” in his monetary policy, which means gradual increases in the official cash rate.
The bank raised the official rate from 0.25% to 0.75% last month. In October, the official spot rate was raised to a record high of 0.25 percent.
In recent months, more people have secured their longer-term mortgages.
Hartmann said interest rates had “really gone up”. “You are going to pay a lot more. “
Banks were stress tested, Hartmann said, and generally added a few percentage points.
“Now they ask you all the things you spend money on, what else could you do without?” There are must-haves compared to bonds to be had if interest rates rise. ”
Hartmann said preparation is key and it is important to know that there is flexibility in your budget.
What really hurts is being taken by surprise. We want people to be resilient no matter what. ”
Harry van der Merwe, of Hello Mortgage and Insurance Advisers in Rotorua, said the Reserve Bank was trying to slow property values and banks had raised rates quickly.
The company already had access to 5% mortgages to make sure customers were okay.
“It should always be affordable, but it made it a lot more difficult. “
Chris Rapson, owner of Rapson Loans and Finance, said some people were concerned about the rate hike, but agreed that the banks had taken those considerations into account.
“The concern will be if we start to see a lot of sales from mortgagees. It’s pretty rare because people pay their mortgage first. ”
But another 2% increase would add $ 10,000 a year to a $ 500,000 mortgage, he said.
“That’s a lot of money and to make $ 10,000 you have to earn $ 15,000 because you’re paying a third of it in taxes.”
Hayley Hubbard, Director of Ownit Rotorua and Certified Financial Advisor, said that if “you want to buy a house, you buy a house and first-time homebuyers don’t tend to worry about interest rates. “.
However, more and more staff were responding to requests from people who wanted to repair and were concerned.
They try to understand. Customers who would normally fix for a shorter term look to the three, four or five year rates, which are much higher and that freaks them out. ”
She said it was “funny” that the banks jumped on the bandwagon and quickly raised their rates.
“There were big pauses when the official payment date dropped… now we’ve got a couple of interest increases over the last few weeks. “
Rotorua Budget Advisory Service director Pakanui Tuhura said homeowners have benefited from extremely low interest rates and are still well below what they were five years ago.
A significant side expense was the rising cost of insurance and many people found that their home insurance did not cover the actual cost of replacement and had to increase coverage and premiums.
Craigs Investment Partners’ head of private wealth research, Mark Lister, said in a column for NZME that the interest rate hikes “are going to hurt.”
The precise magnitude of any increase would depend on when homeowners locked in a rate and for how long.
“Money is going to get a lot more expensive. About two-thirds of fixed rate mortgages need to be reviewed within a year, so there’s a pretty sizable group of people who could take a hell of a shock. ”
An ANZ spokeswoman said its current one-year special rate was 3.65% from 2.49% in December.
The bank had a team dedicated to the financial well-being of customers to support those facing financial difficulties.
“ Every customer situation is unique, so if a customer is facing financial difficulties, we always recommend that they contact us as soon as possible. ”
A BNZ spokesperson said its one-year fixed rate was also 3.65%, and according to the Reserve Bank’s loan-to-value ratio regulations, it required a 20% deposit for a loan. existing and at least 10% for a new construction.
Kiwibank’s loan product manager Pip Maxwell said home loans are rated for affordability and their one-year fixed rate is 3.69% with a 20% deposit.
She said Kiwibank encourages its customers to have as large a deposit as possible.
” We want to make sure that our clients’ loan structure remains suitable and affordable, which is why a periodic assessment is designed to support financial well-being. If a client is experiencing financial difficulties, we will work with them to explore support options and identify the best option for their situation at the time. ”
A Westpac spokesperson said it has helped first-time homebuyers buy 6,598 homes in the past year.
Westpac’s one-year special rate was 3.69%, up from 2.49% a year ago and was mainly due to an increase in wholesale rates.
“We encourage people to speak to their bank if they are worried about their finances, but hardship claims are currently low. Support options for borrowers can include reduced mortgage payments for a specified period or an extension of the term of their mortgage. ”
The outgoing Reserve Bank of New Zealand deputy governor Geoff Bascand said earlier this week that his latest stress tests showed a strengthening in the resilience of the banking sector compared to a year ago due to higher capital levels.
The stress test was designed to test the extent of banks’ ability to cope with customer withdrawals under very severe assumptions.
She is well positioned to support the economy should conditions worsen.
“Our job – and our ability – is to limit financial stability risks and keep headline inflation under control.”