More pain in store for mortgage holders

For a minority of homeowners that will mean moving off the extremely low fixed interest rates of June 2021, when the average one-year term was just 2.2% and the two-year rate was 2.6%, and for others, who initially repriced at 5-6% having to move another 1-2%, it means a rate with a seven in front of it.

While the bulk of the repricing from the extremely low to higher interest rates has happened, there is more to come.

Of those who are refixing, RBNZ figures show 10% are choosing floating but by far the dominant choice is one year or less on fixed rates, with 56% of new loans across house purchases, bank switches and top-ups being at this level.

It’s a big increase from three months ago, with economists saying it is indicative of people believing bank interest rates have peaked and they will come down by the end of this year or sometime next year. 

RBNZ figures as at February show a total of $356.5 billion in loans secured by residential mortgages. Of this, a paltry $38.3b was on floating interest rates, while the biggest chunk of $318.3b was on fixed rates. And of the fixed interest rate mortgages, $107.8b is due for re-fixing by July 4.

However, stress on mortgage payers is starting to creep up. The latest RBNZ figures show non-performing housing loans rose by $42 million or 2.5% –  a year-on-year increase of $696m to a total $1.72m.

Credit reporting bureau Centrix data reveals the number of mortgages reported in arrears increased to 1.51% in February, with 22,600 mortgage holders behind on their payments, the highest level since January 2020.

Other areas are faring even worse. Many loans have been taken out by people putting their house up as collateral for small-to-medium sized (SME) business loans and in the year to January this year their level of non-performing loans has risen from 0.5% to 1.1% - the biggest increase across the mortgage sector.

Non-performing SME loans stood at $562m in February last year and by February this year that figure was $1.13 billion. As the economy worsens and there is no relief in sight from high interest rates, those figures are expected to increase, even though business lending stock increased by $775m (0.6%) in February.

Many mortgage holders will be interested in tomorrow’s GDP figures to see if inflation is coming down in a way the Reserve Bank hopes so it can start to gear up for OCR, and subsequently interest rate cuts, sooner rather than later.

Housing lending stock rose by 0.2% or $824m in the same month, up on the $452m increase seen in February last year. Owner occupier lending increased by $697m or 0.3, while residential investor lending increased by $127m or 0.1%. The housing lending annual growth rate rose from 3.3% to 3.4%.