Client concern over rate rises
Clients have raised concerns with advisers about the rising interest rate environment, with home loan rates expected to increase further over the rest of the year.
Tuesday, July 20th 2021, 4:49PM 
1 Comment
Brokers told TMM Online that they had begun to field more phone calls from concerned clients after many of the major banks hiked rates over the past week.
The big four, Kiwibank, and challenger banks such as The Co-operative and TSB have raised short and long term rates by as much as 30 basis points in recent days.
Analysis from CoreLogic suggests homeowners could be paying $10,000 more on their mortgage each year if interest rates rise by 2% in the next cycle.
Further rate increases could arrive as economists tip the Reserve Bank to lift the official cash rate amid runaway inflation.
Sarah Bloxham of Lets Talk Mortgages, said the talk of rate rises was "definitely causing a bit of panic".
She said clients were keen to apply for additional credit to fund renovations before rates moved up further.
However, she was confident that most clients would be able to deal with higher rates, as interest rates move from record lows after years of downward pressure.
"For most clients, they can cope with the higher rates coming as we test high," Bloxham said. "But the lenders probably need to raise those test rates moving forward to be ready for the higher rates coming."
She said people buying new builds could encounter problems as rates rise, however.
"I do a lot of new builds so it will be interesting when those settle what the rates look like then. Most have 12 month approvals, whereas the three month approval builds, with one lender in particular, could be hard. If the test rate changes, what happens if the client can't do another approval, and they are in the middle of a build?"
NZFSG's Bruce Patten also acknowledged "some panic" among clients over rate rises, but said the issue would only hit "those that had taken significant debt on over the past 12 months".
He played down economists' predictions that rates will rise over the course of this year, with a myriad of market variables to play out.
"I think they [the Reserve Bank] will take a steady as you go approach. In previous attempts to drive the market, they have had to reverse their increases because they have always gone too early.
He pointed to ongoing issues in the economy that could slow the pace of rate increases.
"In the UK they are set to go to 100,000 daily cases, and in the US, they are not up to a 50% vaccination rate. I don't think this [Covid crisis] is over by any stretch. The Reserve Bank has some difficult calls to make."
Joel Oliver of SuperCity Mortgages also suggested rate rises may not be a certainty, due to the unpredictability of the pandemic.
He said clients could be better off fixing one year terms and rolling over, or splitting their mortgage across three different terms, 1, 3, and 5 years, for example, to hedge their bets.
Oliver said borrowers should be well placed to absorb higher rates due to the strong stress testing conducted by lenders in recent years. However, he warned that consumer credit could be a risk for some.
"Banks have done a superb role at stress testing between 5.8% and 7% interest for at least 10 years. The reason people get in trouble with rate rises is not the banks fault, it is in fact consumer credit. This ‘not so’ regulated market will give anyone a new car, full house of furniture and high credit card limits to anyone who is a home owner. The repayments on these can be as much as the mortgage payment if people do not manage these," Oliver added.
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Immigration is at a comparative standstill, and this was a huge driving force toward the "supply & demand" ratio for houses, which in turn boosted (Inflated) house prices.
PLUS, let me clarify the fact that "inflation" as such does not ever exist....except as a 'word.'
Understand this and you are well on the way to discovering what happens.
EG:.....
Rob Muldoon made a speech to our nation back in 1984 where he stated the following...
He said, "he is going to devalue our New Zealand currency (called money by some) over the following year at the rate of 1% per MONTH."
What many of us heard him say was, "he was going to effectively create 12% INFLATION that year..!!?"
And soon after that we created New Zealand's largest Investment Planning business, partly to help counter "inflation."
In the last year, our PM has printed billions of dollars.....so what did people expect would happen.
Houses do not go up (inflate) in value...?
You just need more money (because of currency-glutting causing currency-devaluation) each year to buy them.
In 1998 our Don Brash stated the following at a public meeting in Hamilton (doubters can Google it)....
Dr Brash said, "houses and land had been removed from the CPI "
( CPI means Consumer Price Index) a measure they use to demonstrate the comparative cost of our goods and services).
"WHY?" (this word is the biggest question of all time?)
Because the Reserve Bank Act could not be broken, or someone could maybe go to jail or something?
Oh, for those of you who may have forgotten, the Reserve Bank Act states that "INFLATION" must not go higher than 3%pa
So would the R. B. Act have been broken with houses and land left in the CPI (for circa the last two and half decades) ?
As they say, "it usually pays to keep your finger on the pulse," otherwise you risk joining the herd and buy a whole lot of houses whose prices are propped higher (INFLATED) than normal by "auctions" where a room-full of bidders push the price up against each other, often by as much as mid 30% (and all paid for by the relative 'vendors').
And secondly those 'auctions' further propped (INFLATED) by the supply & demand factor as a result of quite huge immigration numbers.
With the W.E.F. stuff on the agenda, let's see if that 30+% price kick ends up being the amount of 'fall' in house prices.
Particularly when taking into account the huge numbers of houses purchased by "investors" who joined the "housing gold-rush" (& often didn't bother to get tenants because they are too much "bother" when you can enjoy such "capital gain" without the need for rent?), and now have to deal with the inevitable interest rate rises, so they will sell out now.
Seen it al before......buy high & sell low.
Seems like all doom and gloom when I write these ditties.........but it isn't