Less discretionary spending in light of increased mortgage rates would hit hospitality and retail businesses most, Darren Hull said.
Less discretionary spending in light of increased mortgage rates would hit hospitality and retail businesses most, Darren Hull said.
Hospitality and retail businesses in Whanganui can expect reduced revenue as mortgage holders cut back spending to cope with the increased cost of borrowing.
That's the view of Venter & Hull director and chartered accountant Darren Hull after the Reserve Bank lifted its Official Cash Rate (OCR) to 3.5 percent on Wednesday.
It was the fifth time in a row the central bank delivered a 50 basis point hike.
A typical one-year fixed term mortgage rate has gone from under 3 per cent last year to about 5.25 per cent and up.
Hull said with those increases to mortgage rates there would be reduced discretionary spending in the economy that would be most felt by hospitality and retail businesses.
The impact would not be immediate, Hull said, because it would take a while for higher interest rates to filter through to people's budgets.
Darren Hull said businesses should be conscious of the increased costs debt could have in the near future. Photo / Supplied
"A lot of people were on old fixed rates. All of a sudden people are having to set new terms... and then all of a sudden the cashflow changes for them and they see that direct impact."
Whanganui mortgage adviser Aaron Stampa said homeowners refixing their loans were starting to feel the pinch.
He recently helped a client re-fix their $430,000 mortgage and their weekly repayments went from about $460 to $622.
Hull said businesses needed to be conscious about taking on debt and consider if loans taken out today were to cost more in the future, whether they would badly damage their cashflow position.
"The way I would frame it is it's important when making decisions about taking on debt. You're doing it in an environment with an increasing [OCR] so you need to be mindful of it."
Businesses should plan for further rate increases, Hull said.
"It's adding pressure to what a lot of clients are already facing - obviously inflation, increased cost of core materials and obviously wages are under pressure because of inflation."
Hull expected wage pressures to continue for another 12 months.
It wasn't a time to panic, he said, it was more a time to recognise the challenges and to be cautious and resilient.
There was some commentary that interest rates could come down late next year, he said, but views on that varied greatly.
Hull said the cost of borrowing in the past few years had been at record lows and there was unlikely to be a quick return to that.
Hull wasn't aware of businesses having to close but some were "doing it really tough".
Whanganui Chamber of Commerce chief executive Helen Garner said her organisation had been saying for a while that businesses needed to make sure they were paying debt down.
"Because if you owe money this is not going to be pleasant for you," she said.
Admittedly, paying down debt was easier said than done, Garner said.
Helen Garner said it was not a good time to be holding a lot of debt. Photo / Bevan Conley
"We totally appreciate that.
"The ones that are going to be most affected by it are the small to medium sized businesses.
"They're being hit from all ways at the moment with added leave, added public holidays and are most vulnerable."
Garner said the increasing cost of debt would also lead to bigger businesses slowing down their investment.
Despite Hull's expectation that increased mortgage costs would reduce discretionary spending, Stampa said the majority of his clients were actually continuing to spend as normal and little belt tightening was required.
"I'm not experiencing any adverse impacts to my clients as far as their ability to keep servicing their mortgages.
"A lot of my clients - they're aware of what's happening. They know interest rates are going to be increasing."
The biggest question mortgage holders were having at the moment was how long they should fix their mortgage rates for.
Stampa said while it wasn't possible to know this time last year rates would nearly triple, there were plenty of signs they would be heading upwards.
"We can't advise on where rates are heading, that's crystal ball stuff [and] you can't give financial advice to crystal ball stuff."
As for what is to come - with the Reserve Bank pointing to another OCR increase in November - Stampa was not worried his clients would be too squeezed by further rate rises.
"A lot of clients I work with, I plant those seeds with them early. Mortgage payments are going up - most people are aware.
Aaron Stampa said his clients were coping with increased mortgage rates. Photo / NZME
"Of all the fixed rate rollovers, I've had one or two people who have gone 'oh sh** I am going to have to tweak a few things'."
He said there was currently a resurgence of first home buyers shopping in the market.
Those buyers were following what was happening with OCR increases and the subsequent increases to bank lending rates - including the stress test rate.
"They are aware and they are savvy," Stampa said.
Stampa said he had only a handful of business clients taking out loans - but they had largely tried to pull back their expenses.
"[They've] looked to see where they can save money. They're still borrowing, they're still getting approved."
