New Zealanders are proving resilient in the face of higher interest rates, according to a report from CoreLogic. 

According to CoreLogic NZ Chief Property Economist Kelvin Davidson, around 50% of existing loans (by value) are fixed but due to be repriced within the next 12 months, and another 10% are floating.

However, Kelvin wrote in a recent blog that “even though there are clearly financial challenges looming for many households over the coming months, it’s worth noting the repricing process seen to date has been fairly smooth. 

“So far, loan repayment problems and non-performing debt on the banks’ books remain very low, even though many borrowers have already moved from the ultra-low 2-2.5% rates onto a higher level.”

Minimal job cuts will be a helpful buffer

Over the coming months, the unemployment rate is expected to rise in New Zealand – which, at face value, will make it tougher to maintain the smooth repricing path. However, on the Reserve Bank’s projections, this isn’t expected to be about mass job losses. 

Kelvin explains, “It’s actually about more people coming into the labour force but struggling to find work as new job creation slows down.

“In other words, people who already have a job and a mortgage should be somewhat insulated over the coming months, helping them to manage higher repayments.”

The Reserve Bank’s data on interest-only (IO) lending should also provide some economic comfort. According to Kelvin IO activity remains’ controlled’ regarding the flow of new lending and existing loan stock. “As we saw post-COVID, a shift of some borrowers onto IO terms could also be a temporary buffer this time around too.”

Pay attention but don’t panic

Kelvin said the mortgage repricing process and possible increases in bad debt are factors his organisation will continue to monitor. 

He continued, “But the projected resilience of employment is a helpful buffer, and by the end of the year, we suspect that this mortgage repricing flow will have become less of an issue.”