A young Auckland family who bought a house two years ago say it is “extremely tough” to face a doubling of interest payments on their mortgage.
Mortgage rates hit a low of 2.25 percent in 2021, but with the Reserve Bank raising official cash rates in an effort to curb inflation, they are now hovering around 7 percent.
Rory O’Sullivan told it Report tomorrow he and his wife had become spreadsheet experts over the past few weeks as they prepared to refinance their mortgage.
“This is money that wasn’t there before and that we suddenly have to find somewhere,” he said.
“We’re at 3.5 percent – so still a little bit above that really low – but that’s going to kind of double. It’s going to depend on the term we’re going for, but we’re looking at an interest rate of 6.7 per cent .”
He said they had to find almost $2,000 extra per month for interest alone, and to use “a lot of creativity” in budgeting to make it work.
“We’ve been going through it with a very fine comb in terms of what the non-negotiables are in terms of spending, what are the things that we can really, actually bring down.
“We have of course been anticipating this since November and have hired a new mortgage advisor. All kinds of advice and help and see what we can do, because we can’t afford that now.”
Westpac’s latest economic analysis found that half of all fixed-term mortgages in New Zealand will be repriced next year as the economy leans towards recession.
It expected an increase in unemployment, and companies have some of the lowest confidence on record.
It all points to less spending from both households and businesses: exactly what the Reserve Bank is aiming for to help slow inflation.
O’Sullivan said there were some things the family couldn’t cut back on — like childcare for their two young boys, which was also getting more expensive — but they had found some ways to free up cash flow.
“We’ve been given amortization-only options, where we also add some of our credit card debt, but then it just gets eye-watering, looking at about 8.09 percent at a non-bank lender.”
Some of their solutions included stopping payments to Kiwisaver and finding a credit card with a lower interest rate “because frankly for the past two years, or certainly the past year, we’ve only really been able to make the minimum repayments of to meet the cost of living”.
“We’ve got about a week to go before we want to lock in that new rate, but we’re doing what we can… it’s gotten terrifying, I’d say it’s been really, really daunting.”
He said there would be many others in the same predicament.
“We’re not alone in this boat, it’s just serious issues for a lot of people.”
“That’s actually, yes, extremely, extremely tough.”
There may be hope on the horizon for lower interest rates, with high inflation abroad starting to come under control, and signs of weakening in domestic labor markets.
Commentators, including Kiwibank’s chief economist Jarrod Kerr, have even expressed concern that the Reserve Bank’s measures could go too far, potentially curbing growth.