More mortgage pain coming: 59% of home loans due to feel full impact of higher rates

1. A lot of Kiwis have yet to pay peak mortgage rates

Last week, the Reserve Bank published the latest figures on the breakdown of the existing stock of mortgages. This showed that 59% of existing loans (by value) are due to reprice within the next year – and typically that change could be another hike of perhaps of 1% or so. The key point is that the process of repricing our mortgage stock onto current interest rates isn’t finished – so there’s still a lingering risk of homeowners struggling to make repayments. Indeed, there are bits and pieces of evidence that this stress is actually just starting to creep higher, after a long period of stability.

2. But home lending is also on the up

Reserve Bank figures also show there was $4.9 billion of new lending in February, up $1.1 billion year-on-year (albeit 2023 February's figures were low as a result of storm damage), and the seventh rise in a row. Broadly speaking, the data was "more of the same", nothing really changing too drastically, just the steady upturn continuing.

Certainly, low deposit lending isn’t racing away. The number of loans to investors with less than a 35% deposit (unless going down the exempt new-build path) remains trivial, while about 8% of owner-occupier lending in February was done at less than 20% deposit – still well below the 15% speed limit. Most low deposit lending across all owner-occupiers still goes to first home buyers.

3. New-build prices set to underperform existing?

The price difference between new-builds and existing properties has varied significantly over time but currently sits at 6%. It’s no surprise that new-builds tend to be a bit more expensive, given they’re theoretically of higher quality (e.g. insulation) than the average existing dwelling, and also have lower maintenance costs.

Of course, extra factors such as the tax and lending rules, which have favoured new-builds, might also have played a role in recent years, shifting demand relatively more towards new properties. From here, however, the new-build premium may well tend to drop, as the construction sector cools and the tax rules change. Certainly, pre-sales are reportedly hard for developers to achieve at present - we're already seeing some discounting, and there could well be more to come. And as mortgage interest deductibility returns to 100% across the board, some investors might shift back to buying existing properties.

CoreLogic chief economist Kelvin Davidson says there's little economic evidence of little evidence suggesting a near-term cut in the official cash rate. Photo / Peter Meecham

4. At least inflation indicators are slowly easing

Last week’s business and consumer confidence measures from ANZ both fell (for March) – hardly a positive result. But at least the inflation trend remains in the right, downwards direction, especially when it comes to firms’ input costs, pricing intentions, and overall inflation expectations. On the whole, little evidence here for a near-term cut in the official cash rate or significant mortgage rate falls. But the time is slowly getting closer.

5. Filled jobs rising, consents falling?

Just quickly for the week ahead, we’ll get Stats NZ’s filled jobs data for February on Wednesday (delayed from last week), which may well show further growth – supportive for the housing market. Out on Thursday are the figures for new dwelling consents for February and they might not be quite so positive, with a further fall pretty likely.

- Kelvin Davidson is chief economist at property insights firm CoreLogic