Recent reports have warned of a 'mortgage bomb' that could blow up - and a growing number of people unable to pay back debts. Is the story as explosive as some headlines would have you believe?

"When you apply for a mortgage at those very low rates on offer through the pandemic, chances are you would have been tested at rates that are closer to where we're at now," Westpac's Satish Ranchhod told Checkpoint this week.

"People are getting pay rises. Over Covid, we saw both businesses and personal customers really tighten their belts, improve their savings habits and paid down debts. Thirty five-odd percent of our home loans are more than six months ahead on their repayments." [Says ANZ]

Interest.co.nz said the proportion of home loans in arrears on the first of May was lower than the 1.5 percent recorded at the start of March 2021.

Westpac told Bloomberg they'd seen an uptick in customers seeking financial support, but it said most of that was due to Cyclone Gabrielle in February. Kiwibank said it hadn't seen a significant uplift in consumers requiring support.

BNZ said that less than half of 1 percent of its mortgages were in arrears for 90 days or more - far lower than the average of 1.9 percent in arrears back in March 2020. Bernard Hickey in his newsletter, The Kaka, said talk of a mortgage bomb was "reckless".

Hickey said those most likely to be in a difficult position now would be those who took risks to buy properties which they did not currently live in.

"They are effectively ... complaining about a government policy which made that investment choice riskier. That would be like saying the government should help out or bail out people who borrowed money to buy shares," he said.

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[–] Slow@lemm.ee 6 points 1 year ago (1 children)

I'd say there will definitely be people struggling soon but how much, hard to say. Too early to call it but if I couldn't handle the current rates I'd be talking to my bank early.

[–] Dave 4 points 1 year ago (2 children)

For sure, but we should have many of those people already. The banks say they do have people struggling, but it's not higher than normal (and based on some banks, it's lower than normal - probably related to the many people ahead on payments which they probably took advantage of low rates to do).

[–] Slow@lemm.ee 5 points 1 year ago (1 children)

Tbh, I wouldn't trust the banks to be honest on this one, it would scare away customers.

I saw on interest.co.nz that there are still lots of people on 3-4% who will roll onto ~7% in the next 6 months.

It's definitely not straight forward doom and gloom but one to watch.

[–] Dave 7 points 1 year ago

Banks wouldn't lie (or at least, they would lie through omission), they would pick and choose which data to release. But if they say 0.5% of customers are behind on payments when this was 1.9% at the start of 2020, then this will be true.

Banks stress test on higher rates than the current rate, and (many) incomes have gone up a lot in the past few years, so I think it makes sense that there isn't a run of people in trouble. Far more likely is that when unemployment goes up, this would lead to an increase in mortgage borrowers in trouble.

[–] Viper_NZ 4 points 1 year ago (1 children)

They're lower than historic interest rates but property values are much MUCH higher. It's much harder to service an $800,000 mortgage on 6% than a $100,000 mortgage on 12%.

[–] Dave 3 points 1 year ago (1 children)

The only people who have $800,000 mortgages are the people who bought recently. Most people bought their house at a higher interest rate for a lower price. And from the ones that did but a house in the last few years, many sold a house in the same market so their mortgage would have been a lot lower than a first home buyer.

Even so, I'd be curious to know what proportion of mortgage holders bought their house in the last 5 years.

[–] Viper_NZ 3 points 1 year ago (1 children)

This sort of mortgage has been common for years now in the main centres. It’ll be quite few people (me included).

[–] Dave 3 points 1 year ago (1 children)

It's been common for people buying a house for a while, but many people own a house with a mortgage and have not bought a new one since these sorts of prices started. But the more I think about this, I think the proportion of mortgage holders who have bought in the last 5 years may be a lot higher than I first assumed.

[–] Viper_NZ 2 points 1 year ago

It won’t just be fiat home buyers. People moving from Whanganui to Auckland would have been impacted.

The stats would definitely be interesting to see.

[–] chrizbie 2 points 1 year ago* (last edited 1 year ago) (1 children)

I'll be honest, a lot of this stuff goes right over my head but all I know is that I bought a kiwibuild apartment in Auckland at $650k during the pandemic, the interest rate is fixed 5.65% until November next year and we are definitely doing it tough financially, I'm currently going for a higher paying job which should make things a little better but after ditching my career as a chef my earning potential has dipped a bit and that couldn't have happened at a worse time.. importantly though I am a lot happier and my family and I are still keeping our heads above water (just)

[–] Dave 0 points 1 year ago (1 children)

I'd guess you're in a pretty good position. If you're doing ok at 5.65%, my non-expert opinion is that by the time your rate expires in 16 months you'll probably be able to refix at a similar rate.

[–] chrizbie 2 points 1 year ago

We did get lucky in some aspects, kiwibank would only lend us $400,000 so that was a no go but we went with an even smaller bank lender and both the guy we dealt with and the lender are very good to us (nzhl)

That's probably way too much information to be vomiting out online lol