Mixed story for mortgage holders as interest rates rise - banking chiefs
Some mortgage holders face rapid exposure to rising interest rates but many others still have a period of grace before having to face the music, a conference has heard.
Wednesday, November 2nd 2022, 7:23AM 
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Bank executives were speaking at a conference in Auckland organised by the Institute of Finance Professionals of New Zealand (INFINZ).
Leaders of the five big banks were taking part in a panel discussion that covered a wide range of subjects, among them the rapid rise in interest rates since the Reserve Bank began raising the Official Cash Rate in big jumps to combat inflation.
That caused retail interest rates to rise for ordinary homeowners, usually in stages as fixed -rate terms expired and were rolled over at a higher rate.
Former Prime Minister and ANZ chairman Sir John Key said the rising rates could cause some difficulties for borrowers.
“The worrying thing is that we still have over 50% of our customers who have a fixed rate mortgage that rolls off within the next three to six months, that have a two or a three in front of it.
“We see a lot of (pressure) building up.”
Key was speaking as the mortgage rates looked set to double, with the median for a two-year fixed mortgage at 6.19%, facing many ordinary borrowers with a sharp rise.
The implications of his comments were that some people could soon find themselves under severe financial pressure.
But the ASB chief executive, Vittoria Shortt, told the conference of a more gradual shift than the one Key talked about.
“On our map, it will be another 18 months before 90% of our customers are on the interest rate of today, and it will be a further year before 100% of our customers get onto that rate.
“So there is time to get prepared,” she said.
Many mortgage holders had taken the chance to prepare for this day by paying down their mortgages faster than they needed to when interest rates were low. In addition, people were being paid higher wages, with ANZ customers earning 5.4% more on average than they did 12 months ago, according to Key.
In addition, not all interest rate rises are added to fortnightly payments, as the pay-down rate of the lump sum is often adjusted to ease some of the immediate burden.
Kiwibank chief executive Steve Jurkovich had less concern for homeowners, whom he said were resilient and had learned to adapt.
He was more worried about the impact on small business owners.
“I was really struck while walking around Takapuna by the number of small businesses that have pulled stumps and closed up,” he said.
“It’s the same in Ponsonby, there is row after row of shops that have closed. People have said they can’t get staff, it is too hard, costs are high, people are not coming to the High St to shop.”
Jurkovich said this could have serious problems down the line, because many small business owners use their own house as security for a loan.
“Small business owners have got their property on the line, we have not seen the impact of that come through yet.”
The bank chiefs were challenged on this point as well, and were asked whether they should look at avoiding the family home as security for loan that would go into a business proposal. .
“It’s hard, because the reality is that small businesses want to borrow at interest rates that are as low as they can find,” Key replied.
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Comments from our readers
In an environment where interest rates are increasing this puts ASB customers at a disadvantage and is hardly competitive, plus it gives current ASB interest rates more exposure to increases while they wait to reach the 35-day window, which in turn drives more profit for the bank if rates have increased between the 60 and 35 days (25-day difference).
Not sure how this equates to ASB customers “being more prepared “.
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ASB was the first among the banks to push its customers into refixing their home loan online. In most cases this move has significantly disadvantaged borrowers from receiving appropriate financial advice. Forcing your home loan customers into making a “same day decision” when selecting a new interest rate online is also not conducive to helping people make an informed financial decision. Many customers consequently gravitated towards refixing at the cheapest rate possible instead of wisely taking advantage of some of the very attractive longer-term rates that were available last year.
Pushing home loan customers into refixing online potentially limits their access to appropriate financial advice. It makes a mockery of the advice process that the entire industry is now meant to be following. It seems we now have one rule for advisers and another for the banks.