Cost of Living: Westpac warns 'average' Auckland mortgages could skyrocket by $1600

Westpac is warning Aucklanders who bought an average price house two years ago could face higher mortgage rates of around $1600 a month.

Westpac released its latest Economic Bulletin focusing on housing finances on Monday, which said not only is New Zealand dealing with a cost of living crisis, but it's also in the middle of "the great re-fixing".

It said over the past year, an increasing number of borrowers have rolled off their very low fixed mortgage rates that were on offer in the early stages of the COVID-19 pandemic, and on to much higher interest rates.

For Kiwis who fixed a mortgage in May 2021, they could've secured a rate of around 2.6 percent, but fast-forward to today, the same borrowers will be going to re-rix at a rate of over 6 percent.

"To put that in context, if you purchased an average-priced home in most parts of the country with an 80 percent mortgage two years ago, the rise in interest rates could add around $900 to your monthly mortgage payments," Senior Economist Satish Ranchhod wrote in Westpac's Economic Bulletin.

"In Auckland, where house prices tend to be higher, that rise in mortgage interest costs could be closer to $1600 per month."

Westpac said over the coming year, around 50 percent of all mortgages will come up for repricing, which will expose many Kiwis to higher rates.

This could mean households are spending more than 20 percent of their income on interest costs by the end of the year - up from about 15 percent currently.

But it's not all bad news for Kiwis, with Westpac saying incomes have risen by around 6 percent over the past year.

"That reflects the strength in the labour market, which has seen wages rising at a rapid pace over the past few years."

The increase in disposable incomes over the past year has seen household spending continuing to rise at a brisk pace, Westpac said, with nominal household spending levels up around 9 percent over the past year.

"That continued growth in spending does point to resilience in spending appetites in the face of the other headwinds currently buffeting New Zealand households," Ranchhod wrote.

But Westpac noted a big chunk of the rise in spending is down to the 6.7 percent increase in household living cost over the past year.
"Adjusting for higher prices, the amount of goods that New Zealand households have been taking home has effectively remained flat over the past year even as we've splashed out more cash," Ranchhod wrote.

"And some of the increase in overall household spending has been on outbound tourism, which for the most part does contribute to the local economy."

Another impact Westpac noted was households are now saving around 1 percent of their disposable incomes, down from over 2 percent last year.

"This might imply a reduced buffer to support spending in future," Westpac said.

Westpac also said households' net wealth had fallen by 9 percent since the end of 2021, but they noted this was mostly down to the fall in house prices.

"That's a particular concern for those families who first entered the housing market in the past couple of years," Ranchhod wrote.

"Many of those families will now be looking at higher debt servicing costs, while the value of their homes has fallen since taking out a loan. In addition, they will not have had the chance to rebuild their savings since purchasing a home. More generally, lower levels of household wealth might also discourage future spending."