Homeowners not losing sleep over interest rate rises, survey shows

A new survey has revealed Kiwi homeowners are largely unfazed about their ability to cope with mortgage rate rises, but they are continuing to find it difficult to curb spending on consumer items.

The nationwide survey by mortgage franchise network New Zealand Home Loans (NZHL) found more than half of respondents (57.6%) were either not concerned or were neutral about the potential for future interest rate increases.

The sentiment comes after the Reserve Bank held the official cash rate (OCR) last month at 1.75%.

Speaking to NZ Adviser, NZHL chief executive Julian Travaglia said although interest rates are slowly going up they are not completely unpredictable like in the past.

“I remember the days when rates were bouncing around like an elephant on a bungee cord,” he says, in contrast to their current slow but steady climb and the Reserve Bank indicating an OCR increase is unlikely any time soon.

“I don’t see the pressures that would require the Reserve Bank to force the OCR up particularly given that the housing market, at least temporarily, seems to be cooling.

“I think has made people a little bit complacent. I think people still don’t really understand that interest rates are by and large driven by off-shore funding costs by the banks as opposed to necessarily the OCR.”

He says mortgage holders should be paying off their debt faster and smarter.

“What we’ve seen from people’s spending habits is that they’ve managed to get themselves a home loan over a long period now when rates go up – when they come off that fixed rate and go on a new one, they can’t suddenly extend their home loan term out to make the payments lower again.

“So it’s going to force people into a position where they’re going to have to either make some reasonable cut backs or they’re going to get into some financial difficulty.”

Despite the view on interest rates, the survey found that homeowners have some areas of spending that don’t feel they have under control, with the biggest problem area of unplanned spending being around consumer items such as household electronics, tools and sports goods where 47% of respondents found difficulty controlling spending and secondly for services like household maintenance at 46%.

Travaglia he is concerned about those who have overextended themselves in the last few years and now tied to a hefty mortgage.

“If they haven’t been paying that off sooner – making hay while the low interest rate sun’s shining – they could find themselves in trouble down the track,” he told NZ Adviser.

The survey respondents consisted of 1,994 NZHL clients.

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