WELLINGTON (CU)_CoreLogic NZ, a leading provider of property data and analytics recently published its latest Property Market & Economic Update, which highlighted the impact of interest rate hikes on home loans which are expected to take place later this year. Despite claims that Kiwis are facing, were still relatively low interest rates on their mortgages, borrowers are expected to set significant portion of their income aside following changes in interest rates.
About 60 per cent of home loans in New Zealand will need to be refinanced in 2022, which would mean interest rates doubling for these borrowers, according to the report. Kelvin Davidson, chief property economist at CoreLogic noted that fixed-term interest rates, which stood between 2 and 2.5 per cent last year, will probably reach between 4 and 5 per cent by the middle of this year. Since fixed-term periods are generally evenly spread throughout the year, he pointed out that 20 per cent of borrowers on fixed-term deals, together with those on floating rates, could be hit by that doubling.
Such changes in interest rates could have a “significant impact on household budgets”, according to Davidson who said that this could also rein in house prices, or even contribute to house price falls.
Echoing his views, financial adviser Hannah McQueen noted that the rapid interest rise raises concerns, since most borrowers in the Pacific island were not good at saving, unless they were in a lockdown, while they also fail to look at their finances in a longer-term context. She is of the view that Kiwis are not prepared to “navigate the choppy waters we’re about to enter”, since they might be forced to either rapidly cut discretionary spending or take on short-term loans when the crunch came.
In terms of higher mortgage interest rates, McQueen does not expect many people to start selling their homes as a result, although the financial stress may cause relationship breakdowns, which could lead to some selling, she said. “I do think people will start to sell, but that’s probably a year or two away, as opposed to immediately, because you can buy yourself time in the first instance. You can defer debt, you can take on short-term debt.”
