Mortgage payers warned of rate rise pain to come

Homeowners with a mortgage need to start factoring in higher repayments, warns Bob Brereton, CEO of First National Real Estate. He says that those who fail to plan ahead may face hardship over the next 18 months.

He says lower interest rates have partly offset increasing house prices and that people have been able to afford to borrow more because repayments have been lower than in previous years.

However, financial watchdog Canstar says home loan rates will continue to rise this year, despite a decision by the Reserve Bank to leave the official cash rate at 1.75 per cent for the rest of the year.

Brereton says the mortgage interest rate situation could change quickly and that borrowers may find themselves in difficulty. If mortgage interest rates went up by a full percentage point the increase on a $500,000 home loan would be $100 a week.

“For some people that could be a tipping point,” says Brereton.

He recommends borrowers on a tight budget work out what their repayments would be if rates moved up by two percentage points.

“Forewarned is forearmed,” he says. “If people do this simple exercise early they’ll be ready for any changes over the next 12 to 18 months.”

Brereton says that in some cases people will want to sell up and buy something cheaper.
“Obviously, selling under financial pressure isn’t ideal — so the earlier people plan for this option the better.”

Free with Monday’s Herald

The quarterly Property Report is free with Monday’s Herald. In this edition we dig deep to establish  why Auckland is short of thousands of much-needed homes —  the answer may not be as obvious as you think.

We look at the rental crisis, there’s commentary from leading real estate agency bosses and you can find out the average price of a home in your suburb, thanks to QV.co.nz.

Storm clouds

According to economists at Westpac there are some clouds on the horizon, including global interest rates rising in response to expectations of increased US spending and tightening of monetary policy from the Fed — it is this, they say, that has caused banks operating in New Zealand to raise mortgage rates in recent months.

Westpac’s acting chief economist, Michael Gordon, says: “This increase in borrowing rates brings some of the risks around the domestic economy into sharper focus.”

He says household debt levels have risen rapidly in recent years, with much of it leveraged against housing, including investment properties.

Gordon says: “The rise in borrowing rates, as well as last year’s tightening in lending standards (such as the LVR), has seen house price inflation slow, with some further softening expected over the coming year.”

He says a moderation in house prices inflation is a welcome development, but says it is hard to picture outright declines in house prices given the scale of the housing shortage.

Northland rises

The average price of homes across Northland touched $483,000 last year, an increase of 23 per cent on 2015’s figure according to   Barfoot & Thompson. However, if you look at the firm’s sale prices  in the region  during the last quarter of 2016 the average rises to $554,000.

Peter Thompson, managing director of the firm says  lifestyle and rural properties dropped in value by  27 per cent to $417,000   — partly due to farmers selling off  blocks giving buyers lots of choice.

Thompson says Northland hot spots include Bream Bay, Whangarei City and Kerikeri.