PHOTO: Homeowner. FILE
According to the Reserve Bank (RBNZ), most households are effectively managing increased mortgage payments, and the banking sector remains robust. Nevertheless, the recently published half-yearly Financial Stability Report (FSR), which was released on Wednesday, noted that while most households have been able to handle higher mortgage payments, there has been a slight rise in the percentage of mortgage arrears from previously low levels.
Despite this, the RBNZ did acknowledge that a growing number of borrowers would encounter “significant debt servicing stress” as they transition to higher interest rates. The report predicts that by 2024, as much as 18 percent of mortgage holders’ incomes could be allocated to interest repayments.
Bruce Patterson, a mortgage broker and director at Loan Market, expressed concerns that individuals can only endure the current situation for so long. He anticipates that an increasing number of homeowners will face difficulties in meeting their mortgage obligations next year. Patterson believes that homeowners’ ability to adapt is limited, especially when confronted with the combined challenges of rising living costs and higher mortgage rates, making 2024 a daunting year.
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Patterson suggests that while the Reserve Bank appears confident in the current scenario, they are the ones who contributed to this issue, and consequences will manifest in the coming year. He points out that some households are already allocating as much as 50 percent of their income to mortgage repayments and will be hit the hardest by future interest rate hikes.
Though some homeowners are switching to interest-only repayment options to manage, Patterson believes the RBNZ should consider lowering interest rates sooner rather than later.
Regarding lenders, Patterson indicates that they are prepared to assist their clients. Many clients are reaching out for guidance, and banks are showing willingness to cooperate and support their customers during these challenging times.
The impact of rising interest rates is compounded by the looming threat of unemployment for some of Patterson’s clients. While many have been able to secure new employment opportunities relatively swiftly, the ongoing job market changes may limit future options. Particularly in the trades sector, the workforce is diminishing, which could further strain the situation.
Patterson concludes by noting that it is still early days, but he anticipates that 2024 will be a demanding year for many of their clients.
SOURCE: RNZ