Aucklanders held the lion's share of million-dollar-plus mortgages. Photo / NZME
Aucklanders held the lion's share of million-dollar-plus mortgages. Photo / NZME
The number of Kiwis with a million-dollar-plus mortgage has doubled in just three years prompting concerns about how they will cope with rising interest rates and the soaring cost of living.
In the third quarter of 2019 just over 50,000 borrowers had a mortgage of more than $1m but thereare now nearly 103,000 who have taken on sky-high debt levels, data from Centrix shows. That is 8.5 per cent of all borrowers or roughly one in every 12.
Keith McLaughlin, managing director of Centrix, said ultra-low home loan rates combined with soaring property prices were behind the big jump.
"Over the last three years what we have seen is effectively interest rates right down low and house prices up high. There has been a lot of borrowing at cheap money to buy expensive houses."
McLaughlin said while it was not surprising that people had borrowed more during the period of low interest rates the number had come as a shock.
"The quantum is a bit of a surprise and also the spread with quite a few superannuants falling into that category."
Superannuants had 4 per cent of mortgages valued over $1m, while a third were held by those aged 40 to 49 years, 30 per cent by those aged 30 to 39 and 29 per cent by those aged 50 to 64.
Geographically Aucklanders held the lion's share of million-dollar-plus mortgages at 66 per cent followed by 11 per cent in Wellington, 6 per cent in Waikato and 5 per cent in Canterbury.
At the same time $2m-plus mortgages also rose from 6150 to 14,104. There were 1.2 million borrowers with an average mortgage of $470,000 while the average size of a first-home mortgage peaked at $600,000 earlier this year, McLaughlin said.
The figures include investors and those with multiple properties.
McLaughlin said currently mortgage default rates were very low at 0.96 per cent of all mortgage debt in July.
"Having a large mortgage is not inherently a bad thing if you're able to service the repayments.
"The big concern is what is going to happen over the next six to 12 months if interest rates stay where they are or go higher and the rising cost of living.
"It has got to put a squeeze on the wallet and if you are sitting there and you borrowed a lot of money when it was relatively affordable, even though the banks have priced in interest rises in their approval process, it still puts a bite on their wallet. And that is where the problem comes because the exposure is very high."
Centrix managing director Keith McLaughlin. Photo / Supplied
McLaughlin said mortgages were easier to get three years ago than they had been in the last 12 months since the introduction of tighter credit rules.
"Certainly in the last 12 months there has been more responsible lending legislation put in place, more controls in that area, but going back two, three years ago it was probably easier to get money from a bank."
McLaughlin said as long as unemployment remained where it was, interest rates didn't go much higher and the cost of living was under control then household budgets should still be okay.
"But if one of those three things breaks then I think the pressure will come on households. We are watching that really really closely."
Already it has seen arrears increasing in unsecured lending with credit cards, buy now, pay later and personal lending missed payments rising.
"We are now seeing secured lending for motor vehicles defaults in arrears starting to rise."
McLaughlin said traditionally the next area of stress would be housing lending.
"If that starts to go, house prices are not at the same level they were a period ago so again it puts pressure on the equity of a borrower. It is a cloud on the horizon and there is right to be concern over that."
He said those who felt under pressure were best to front foot it and talk to their lender before going to the wall.
"The last thing you want to do is bury your head in the sand which has the potential to hurt your overall financial wellbeing in the long term."
