KEY POINTS:
This year about 300,000 home mortgage-holders on fixed-term loans will need to refinance loans worth $42.7 billion. Many will be coming off interest rates of 6.9 to 7.5 per cent negotiated three years ago and staring at rates predicted to top 10 per cent.
For owners in Auckland and northern provincial centres already mortgaged to the max after a five-year house price boom, this could add up to $100-$150 a week in repayments. They're already squeezed by petrol price rises and 50 per cent increases in kitchen staples such as butter and cheese.
At the same time, house prices are falling. If they want to get out it's taking longer to sell and they are having to "adjust their expectations" - fetching 5 to 10 per cent less than the market might have allowed a year ago.
It could get worse. Housing market soothsayers are predicting prices could fall anywhere from 10 to 30 per cent before stabilising late next year.
And where's the relief? With inflationary pressures building, interest rates are expected to remain painfully high.
While Reserve Bank governor Alan Bollard has stopped raising the official cash rate, banks have picked up where he left off, raising lending rates because their wholesale funding costs have risen on the back of the US credit crunch.
While Bollard may want to ease homeowners' pain by bringing down interest rates over the next 12 months, inflationary worries may stop him. Market experts believe the official cash rate may fall only three-quarters of a per cent by this time next year, leaving our rates well out of sync with other developed nations (thus continuing to attract foreign investors and keeping the exchange rate high).
The mortgage belt and those paying higher rent are expected to do it toughest over the next 12-18 months as economic conditions tighten.
It's not just the stress of higher rents and mortgage repayments - it's the drought and high commodity prices overseas which will keep dairy and meat prices up, it's petrol heading for $2 a litre and electricity costs expected to spiral unless there's decent rain soon.
Householders are not only bearing the brunt of the tougher economic conditions, they are seen as a contributor. With cheque books being put away, retail sales were expected to decline even before the current conditions hit the fan. Affordability woes will also contribute to a weakening residential construction market. The BNZ predicts residential construction investment will fall 9.5 per cent this year and a further 6.6 per cent next year.
"It is this household sector response that primarily drives our recession projections," warns head of research Stephen Toplis.
"Householders are facing substantial reductions in effective disposable income as a function of rising mortgage interest rates and higher prices for staple items such as food, electricity, petrol and rates."
Those looking to take out new mortgages will find banks much stricter in their lending criteria - unless on very high disposable incomes, they may have to come up with 20-25 per cent deposits.
And Toplis warns in the BNZ's monthly Economy Watch that the impact of the credit crunch is only just beginning to be felt by the wider economy.
On the interest.co.nz website, managing editor Bernard Hickey has launched a mortgagee sales index, tracking the number of times mortgagee is mentioned in property ads on the TradeMe and Real Estate Institute websites.
Alistair Helm, chief executive of realestate.co.nz, says "mortgagee" has been the most popular search phrase on the site in recent weeks.
The index itself has more than doubled in the six weeks since its launch, to 226. While it doesn't claim to be a definitive guide, it adds to anecdotal evidence of an increase in forced sales and of owners selling before fixed interest terms expire.
Valuers at Quotable Value NZ are hearing the same, though sellers' circumstances don't show up in sales data. "What we are hearing to a degree is that there's less activity in the investment sector," says QV Online general manager Steve Langridge. "Those with multiple properties who have gone to market are not selling."
But David Tripe, head of banking studies at Massey University, says the forced sales scenario has been over-hyped. Many home-owners have built up years of equity in their homes and have low, or no, mortgages, he says.
"It's only those who have refinanced to the hilt in the past couple of years who will be at risk. I suspect that's not a huge proportion of the total market. People won't be happy to sell while interest rates are increasing but it won't turn the lights off."
Tripe says the current conditions don't look too bad - but there could be some surprises in the way the US credit crunch affects our Australian-owned major banks. "There are some consequences in this that we haven't got around to studying yet."
5 WAYS TO KEEP YOUR FINANCES SECURE
1. Try to repay some of your mortgage. Reducing you home loan as quickly as possible can save thousands.
2. Increase savings as a safety mechanism against risks such as job loss. Take advantage of high savings rates. Join Kiwisaver.
3. Avoid taking on more debt and check your borrowings: make sure you're getting the best rate for your mortgage and credit card loans.
4. Get protected. If your family depends on your salary, then income protection insurance could be useful.
5. Think twice before buying a house. Getting a foot on the housing ladder is important but real estate could soften, leaving buyers with a house worth less than it cost.
