Mortgage stress explosion in NZ
Soaring interest rates and house prices have triggered an explosion in "mortgage stress", with the number of households devoting more than 40% of their take-home pay to home loan repayments tripling in just three years.
Home is where the heartache is
New research for the Sunday Star-Times by economist Brian Easton shows that half a million New Zealanders are now living in mortgage stress, spending more than 40c in every after-tax dollar their households earn on the mortgage.
"There has been a sharp rise in households under financial pressure because of their burgeoning mortgage bills," said Easton.
Overall, 175,000 households, or 11.2% of all households, are in mortgage stress, in figures to June 2007. The figures represent a large swath of the mortgage-belt, as only about 30% of all households have a mortgage.
In 2004 just 3.7% of all households were in the mortgage stress zone.
Easton said while for some households heavy mortgage repayments were a deliberate part of their life financial plan, for others it was a huge strain and left little in their budget for anything else.
National leader John Key said the figures "show there's real pain out there, and it's likely to get worse over the next six months".
Mortgage brokers say new entrants to the housing market are under even greater strain, with Mike Pero Mortgages saying 50% of take-home pay is now usual for first home buyers. Some are even committing 60% of their after-tax income to repaying a home loan.
"Increases in income haven't kept pace with property price rises and the cost of finance," said Mike Pero Mortgages franchise owner Matthew Mark.
Last week the international credit ratings agency, Fitch Ratings, ranked New Zealand as the world's riskiest housing market, with our prices among the world's most over valued.
In a survey of 16 developed nations, Fitch also ranked New Zealand households second only to Denmark for their debt vulnerability. With its high interest rates, New Zealand also had the worst interest to income ratios in the survey.
Key said about one-third of mortgages are due to be renegotiated over the next six months on higher levels of interest.
"That will really bite in at homeowners. Homeowners are paying the price for Labour's economic mismanagement," Key said.
He said heavy government spending was helping fuel inflation, thus forcing interest rate rises. Reserve Bank governor Alan Bollard hiked the official cash rate two weeks ago, the fourth rise in a row, pushing some floating rates up to 10.5%.
And Key said real estate agents were telling him some property owners were being forced to sell their homes and downsize in order to cope with their mortgage repayments.
Acting Finance Minister Trevor Mallard said some financially stressed families would be being helped by the Working for Families package, which would not have fully kicked in over the time period of the research. And KiwiSaver was just coming in now.
"We do recognise that home ownership has been a big part of New Zealand's national identity which we don't want to lose," he said.
"Having said that, we are definitely worried about the increasing appetite for debt by New Zealand households in recent years. The so-called `wealth effect' from rising house prices means people have felt wealthier and been prepared to get into greater debt."
Mallard said the government was likely to announce new policies later this year aimed at tackling housing affordability, with help for young families purchasing their first home, and policies that would increase the supply of affordable homes.
Mallard rejected National's suggestion the government was to blame for the high interest rates.
"What has brought about higher interest rates has overwhelmingly been the strength of domestic consumption, not government spending and we may start to see interest rates come down if inflationary pressures ease.
"We've got one of the lowest rates of unemployment in the developed world - this is a great result, but it does put pressure on inflation," Mallard said.