Some Bright Spots For Home Loan Customers In Stormy Times

The value of new home loans decreased 18.9% in the six months to December 2022, according to data insights released by the New Zealand Banking Association today. This comes as borrowers face steeply rising interest rates and a nationwide drop in property values.

“Many households are doing it tough in the face of the rising cost of living. Added to that are rising interest rates for those with home loans. Our latest information provides some positive notes on how households are managing through the current challenges,” says New Zealand Banking Association chief executive Roger Beaumont.

“The average value of new home loans is $338,598. That’s down 18.9 per cent on the previous six months. So, while the Reserve Bank is raising the cost of borrowing to help fight inflation, people are starting to borrow less. That’s also a reflection of the property market, which saw residential property values across New Zealand decrease on average by 7.2 per cent in the year to February.”

There are nearly 1.26 million home loans across 1.09 million customers. The average value of all home loans is $316,019. Of the 45,628 new home loans opened, 26.1% were issued to first home buyers.

“In this period, we saw almost 45 per cent of home loan customers ahead on their loan repayments. That’s slightly down on the previous six months. It shows that many people took advantage of interest rates when they were at historic lows. They likely retained their repayments at the same level as before, or increased them, to help repay their loans faster and save on the overall loan cost. It also means that nearly half the people with home loans had built in a buffer that has effectively cushioned the impact of higher interest rates, which we’re now seeing. It’s a double win for them.

“It’s also interesting to see that 12,120 home loans switched from principal and interest to interest-only repayments. That’s just a small fraction – less than one per cent – when compared to the total number of home loans.

“We’ve also seen a drop of nearly 10 per cent in home loans on variable interest rates, which suggests borrowers are looking for more certainty in the current market. Now around 17 per cent of home loans are on variable rates.

“Of all bank customers, and there’s over 9.5 million unique customer accounts, 4286 were granted hardship status, which once again is a small fraction of the total. That’s not to say people are having an easy time. Banks are here to help, and anyone experiencing financial difficulty should contact their bank as soon as possible. The sooner you talk to your bank, the more likely they’ll be able to help,” says Beaumont.

The full set of retail banking insights is available here: https://www.nzba.org.nz/wp-content/uploads/2023/04/Retail-banking-insights-July-to-December-2022.pdf

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