Kiwi homeowners re-fixing their mortgages seem to be managing to pay interest rates of up to 7%, while homeowners in the UK are already panicking about theirs hitting 6% amid fears a mortgage bomb is about it explode there.
But while most Kiwis appear to be coping with the higher interest rates – there are concerns that the situation in the UK could be far more dire and their interest rates could soon overtake the rates here.
This week the Bank of England raised its base rate for the 13th consecutive time taking the borrowing cost for banks from 4.5% to 5% as it tries to curb the country’s high inflation.
It comes as the Reserve Bank of New Zealand signalled last month that the Official Cash Rate is likely at or near its peak following 12 consecutive hikes to its current rate at 5.5%.
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Westpac chief economist Kelly Eckhold said New Zealand has taken a relatively pro-active approach, while the UK had been slower in its approach.
“I think that was part of their plan – go early, go hard enough so you don’t really have to push things too far.
“It’s not a situation the UK is experiencing where they’ve gone considerably slower in the face of a lot stronger inflation.”
Eckhold said the UK has also felt the impacts of the Ukraine War much harder and this has had a huge impact on inflation. It has also pushed energy prices up so consumers who are already feeling the pinch are now worrying about how they will afford the larger mortgage repayments too.
“I would suggest to you that the bigger set of concern there is not so much the level of interest rate, but the fact that it looks like there could be a further significant adjustment from here.”
Infometrics chief forecaster Gareth Kiernan said Kiwis are more used to having higher interest rates. Photo / John Stone
Infometics chief forecaster Gareth Kiernan said New Zealand is more used to higher interest rates and the banks also stress-tested at quite high levels to ensure they would still be able to meet their mortgage repayments.
“6% mortgage rates here are perfectly normal – we've all seen them before – as long as you bought your house before the pandemic at least.”
The last time the UK’s Bank of England interest rate hit similar levels was 16 years ago when it peaked at 5.75%, Kiernan said, so they are therefore “more sensitive to rates rising to levels that I guess we don’t think twice about here”.
While the majority of homeowners have handled the interest rate increases so far and not had to default, he said New Zealand is not completely out of the woods as there is the potential of further pain when more Kiwis are forced to refix and if interest rates do rise again. However, he does not expect any interest rates to go much past 7%.
CoreLogic chief economist Kelvin Davidson said the panic in the UK could prove to be unfounded. Photo / Fiona Goodall
CoreLogic chief property economist Kelvin Davidson said the UK may just be having similar "bouts of panic" that New Zealand had when its interest rates started to rise quite significantly, and they may also prove to be unfounded.
“A big reason for this is that employment has stayed high. People have had to adjust their budgets, for sure. But at least they’re still got an income, and this has been a huge support.”
He also believes the UK banks won’t want to see customers lose their homes and, like New Zealand banks have, will offer temporary solutions such as interest-only repayments or extend the terms of the loan to support struggling customers.
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