Property owners are putting their houses on the market and downsizing or downgrading in the face of crippling interest rates which, in some cases, are causing their repayments to double overnight.
Banks are urging some owners feeling the financial pressure and missing repayments to make the move. In other cases, owners want to reduce their debts and realise they don’t need as big a house, the bach or the investment properties.
Ray White salesperson Charlie Brothers said often banks are behind a sale – not a mortgagee sale – as people feel the pinch.
Others are choosing of their own accord to downsize to reduce costs, say from $1 million to $800,000, because they're more comfortable servicing that level of debt, Ray White Manukau co-owner Tom Rawson added.
Start your property search
“They are going, ‘We don’t need this big house. It’s only me and her kicking around. We can go to a two-beddy, three-beddy – we don’t need the big property’.”
The agents recently had an older couple downsize from a Clevedon lifestyle property to a smaller home in Clevedon Village.
Another couple was about to list their home because their interest rates were due to be re-fixed and they didn't have the money to make the larger repayments.
Read more:
- Auckland’s median sale price drops below $1m but ‘hibernation’ may not last
- Banks luring customers with low, long-term interest rates – should you take the 5.99% bait?
- LVRs and CCCFA: What the home loan shake-ups really mean for the housing market
Squirrel Mortgages chief executive John Bolton said selling up to reduce debt was not easy because homes were emotional transactions, but it was the sensible thing to do.
“Active management” is the term banks use to urge clients to sell if they are struggling to meet repayments before the situation spirals out of control.
“Banks actively encouraging people to sell stuff is nothing new. Banks don’t like going to mortgagee sale – mortgagee sale is the last resort. Banks would much rather have people make the hard decisions themselves, and customers are far better off selling a property themselves than have the banks sell it for them.”
Squirrel Mortgages chief executive John Bolton said some homeowners' repayments will have doubled. Photo / Supplied
Some people who shelled out $1m for a house at the peak of the market at a 2.5% interest rate will now be paying double in repayments and some just don’t have the surplus income to service it, Bolton said.
“There will be a lot of people who simply can’t afford their mortgage now.”
But there are also astute property owners with multiple properties who feel uncomfortable carrying large amounts of debt in the current environment so have decided to sell some properties to reduce debt.
Although downsizing and downgrading is a good strategy for older more established homeowners, it is not a solution for first-home buyers who don’t have much equity in their homes so need to stick it out, he added.
“For them they would just take a bath if they sell, so they will just hold on as long as they can and they will be thinking about other options like ‘do I bring in a boarder’.” Bolton is aware of homeowners who moved back in with their parents and rented their house out while waiting for interest rates to drop.
Hastie Mortgages owner Campbell Hastie is also aware of cases where people are selling off properties to reduce debt.
He said some investors under pressure have decided to sell off investment properties or their holiday home to shrink their debts because of climbing interest rates. In most cases, he said, they had owned their properties for a few years so while they would not make a loss, they would also not get as much as they wanted.
In another case, a customer was in the process of downsizing to reduce their debt. Hastie said they were not under any financial pressure, but decided they didn’t need the big house and wanted to buy something smaller while at the same time slash about $300,000 off their mortgage.
But for most of the people Tella chief executive Andrew Chambers has met, they are still hanging on to their homes. They are working with banks to take the pressure off by doing things such as extending interest-only arrangements or extending the term of the loan as the higher interest rates eat into the household's disposable income.
"I know we are seeing rising defaults, but I'm not really seeing that translating to people doing things like downsizing. They are just wearing it at the moment."
Use the search field to find out the best mortgage deals available today.
