NZ's high household debt levels 'putting housing market at risk'

One of the world’s major credit rating agencies has identified the New Zealand housing market as at risk.

The household debt-to-GDP ratio in New Zealand is more than 85 percent, despite recent affordability constraints and regulatory interventions, according to new report by Fitch Ratings.

The 2019 Outlook reports says high levels of household debt has made the wider economy more vulnerable to shocks in the financial sector and borrowers more exposed to downturns.

Fitch Ratings predicts New Zealand house prices will continue to climb this year and next, which will put further pressure on affordability.

However, the challenges facing New Zealand's housing market are as severe as those facing Australia's.

Fitch Ratings said the household debt-to-GDP ratio is at 121 percent in Australia and predicts that house prices will fall sharply, by another 5 percent, in 2019 before stabilising in 2020.

The report predicted Australia’s housing industry would be the worst performer out of 24 countries for the second year running.

Prices have already dropped by 6.7 per cent since their peak and Fitch said this was mostly due to lower investor demand thanks to tougher restrictions on lending.

“Australian borrowers continue to be vulnerable to financial shocks, despite falling prices, as their very high household debt level (which is the highest in this report relative to GDP at about 120 per cent), is coupled with mostly variable interest rates,” the report noted.

It notes that the most expensive properties in Australia have experienced the largest declines of 9.5 per cent.

Fitch has also warned Australians could struggle to keep up with their mortgage payments as house prices fall and it takes longer to sell a property.