The number of Kiwis with mortgages over $1 million has doubled in just three years, raising concerns about how they will cope with rising interest rates and the soaring cost of life.
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In 2019, just over 50,000 borrowers had mortgages over $1 million, but there are now nearly 103,000 who have taken on exorbitant levels of debt, according to Centrix data. This represents 8.5% of all borrowers, or about one in 12.
Keith McLaughlin, managing director of Centrix, said ultra-low mortgage rates combined with soaring property prices were behind the big jump.
“Over the past three years, what we’ve seen are indeed rock-bottom interest rates and rising house prices. There’s been a lot of cheap borrowing to buy properties. expensive houses.”
McLaughlin said while it was unsurprising that people borrowed more during the period of low interest rates, the number came as a shock.
“The quantum is a bit of a surprise and also the spread with quite a few retirees falling into this category.”
Pensioners held 4% of mortgages worth more than $1 million, while a third was held by those aged 40-49, 30% by those aged 30-39 and 29% by those aged 50 to 64.
Geographically, Aucklanders held the lion’s share of mortgages over $1 million at 66%, followed by 11% in Wellington, 6% in Waikato and 5% in Canterbury.
At the same time, mortgages over $2 million also fell from 6,150 to 14,104. There were 1.2 million borrowers with an average mortgage of $470,000, while the average size of a first mortgage peaked at $600,000 earlier this year, McLaughlin said.
Figures include investors and those with multiple properties.
McLaughlin said mortgage default rates are currently very low, at 0.96% of all mortgage debt in July.
“Having a large mortgage is not a bad thing in itself if you can afford the repayments.
“The big concern is what’s going to happen over the next six to 12 months if interest rates stay where they are or go up and the cost of living goes up.
“It must put a strain on the wallet and if you’re sitting there and you’ve borrowed a lot of money when it was relatively affordable, even though the banks factored the interest increases into their process of approval, it always weighs on their portfolio. And that’s where the problem comes from because the exposure is very high.”
McLaughlin said mortgages were easier to get three years ago than they had been in the past 12 months since tighter credit rules were introduced.
“Of course, in the last 12 months there has been more responsible lending legislation, more controls in this area, but two or three years ago it was probably easier to get lending. money from a bank.”
McLaughlin said that as long as unemployment stayed where it was, interest rates didn’t rise much and the cost of living was under control, household budgets should still be fine.
“But if any of those three things break, I think the pressure will come on households. We’re watching that very, very closely.”
It has already seen arrears rise in unsecured loans with credit cards, buy now, pay later and personal loans missed payments rise.
“We are now seeing that secured loans for motor vehicle defaults are starting to increase.”
McLaughlin said traditionally the next area of stress would be home loans.
“If it starts to fall, house prices are not at the same level as a period ago, which again puts pressure on a borrower’s equity. It’s a cloud in the air. horizon and there is cause for concern about it.”
He said those who felt under pressure had better go ahead and talk to their lender before going to the wall.
“The last thing you want to do is stick your head in the sand, which could harm your overall long-term financial well-being.”