Kiwibank has a policy not to disclose its test rate.
The Reserve Bank expects the average special two-year fixed rate to peak at nearly 6 per cent by March 2023.
So, those who get their mortgage applications approved now should be able to service their debt should rates get to the levels the Reserve Bank is expecting them to reach.
Nonetheless, the difference between the rates banks are charging, and the rates they're testing at, is smaller now than what it was when rates were rock-bottom in 2020 and 2021, and banks kept testing wannabe borrowers at more "normal" rates of around 6 to 6.8 per cent.
The difference got as large as 4.1 percentage points in 2020, when mortgage rates were very low.
The Reserve Bank told the Herald this provides it with "reassurance" people who took out loans in 2020 and 2021 should be able to afford their mortgage repayments when they come to refix in a higher interest rate environment.
This is despite the Reserve Bank noting some recent homebuyers will come under some pressure and will have to tighten their belts.
Looking ahead, the question is, are buffers of 2 or 2.5 percentage points between test and actual rates sufficiently prudent?
The banking regulator in Australia requires banks to test mortgage applicants at rates 3 percentage points above the rates attached to the loan product a borrower is after.
The Reserve Bank didn't provide a "yes/no" answer when the Herald asked whether it was comfortable with current test rates, but said, "In general, banks decide on their test servicing rates taking into account both a reasonable buffer to borrowers' current mortgage rates, and where the bank expects mortgage rates to trend over the longer term.
"This means test rates can rise and fall to a lesser degree than actual rates move through time.
"As actual mortgage rates fell over 2017-2020, banks' test rates did not fall by the same amount. As mortgage rates now rise, we are seeing banks' test rates rise, but to a lesser extent.
"Banks regularly review their test rates to ensure they provide appropriate buffers.
"We note that test rates are only one part of a bank's mortgage serviceability assessments, alongside various assumptions about borrowers' incomes and expenses that incorporate other layers of prudence...
"We encourage aspiring mortgage holders to discuss their situation with their bank and to seek qualified financial advice where appropriate."
The commentators the Herald spoke to are comfortable with the rates banks are using to test mortgage applicants.
CoreLogic NZ chief economist Kelvin Davidson noted banks have already priced in expected official cash rate (OCR) hikes to some extent.
He also noted mortgage rates are influenced by wholesale rates overseas – not just the OCR.
But fundamentally, Davidson struggled to see the Reserve Bank lifting the OCR as high as 4 per cent by September 2023, as the Reserve Bank projects.
Accordingly, he believed it would "pretty extreme" for fixed two-year rates to get to the sorts of levels banks are currently testing at.
Former Reserve Bank manager turned blogger Michael Reddell made the point that if mortgage rates rose well above 7 per cent, inflation levels would likely still be very high.
Higher consumer inflation typically means people's wages are higher, which should help mortgage holders service their debt.
CDS Consulting managing director and former Westpac treasurer, Jim Reardon, said the tougher standard in Australia might account for the fact Australians tend to use floating rates more than New Zealanders do, exposing them more directly to interest rate rises.
