Rise of $1m mortgages sparks rate of interest warning
Million dollar mortgages are becoming more common and there is a warning that the rate hikes will hit hard.
New data from real estate website Homes.co.nz showed that 15 percent of all nationwide sales in the past 12 months were more than $ 1.25 million.
The number was even higher in Auckland, where 37 percent of all sales for more than 1.25 million, Corelogic said, in 2021 alone, 57 percent of Auckland sales were more than $ 1 million, compared with 33 percent a year ago Years.
Tom Lintern, Chief Data Scientist at Homes.co.nz, said that if it deposited 20 percent, it meant a significant number of people had taken out a $ 1 million mortgage.
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“Not all buyers at this price would borrow this amount, but it can be assumed that many have entered the market with this debt.”
Reserve Bank data shows that $ 832 million of total borrowing of $ 8.9 billion in May went to those with a deposit of less than 20 percent, up from $ 515 million in May last year and $ 707 million Dollars in 2019.
Mortgage broker Glen McLeod said he processed a series of $ 1 million mortgages each month.
“With some of the average purchases on the North Shore between $ 1.5 million and $ 1.8 million, this is becoming more and more regular.
“Usually it is not your first-time buyers, but rather second or third buyers who want to upgrade their property. There is also a lot to see for this type of shopping in the rural lifestyle sector.
Alden Williams / stuff
Homes.co.nz data shows 37 percent of all home sales in Auckland were for more than $ 1.25 million.
“The income has to be extremely good and depending on the lender we go to, an appraisal may be required if the property purchase is over $ 2 million to $ 2.5 million.”
But people with high mortgages will feel the pressures of rising interest rates more strongly.
Mortgage rates with one to three year terms are in the range of 2 to 3 percent.
While a $ 1 million mortgage might be serviceable at that rate, it is important to think about what it would mean for repayment if interest rates rise again, Lintern said.
His analysis showed that monthly repayments for the average Auckland home could increase by nearly $ 2,000 per month if interest rates rose to their January 2015 levels.
Homes.co.nz put the median Auckland price at $ 1.21 million in July, which would require a $ 968,000 mortgage on a 20 percent deposit.
For a 25-year mortgage at Kiwibank’s current interest rate of 2.19 percent, that would mean a monthly repayment of $ 4,193.
However, if interest rates rose to the January 2020 average standard rate of 4.32 percent, monthly repayments would be $ 5,282, and if they rose to the January 2015 rate of 5.85 percent, they would be every month $ 6148.
Lintern said it would be similar in the other major centers, where repayments would increase by more than $ 1000 a month if interest rates increased to the January 2015 rate.
In Wellington, which had an average price of $ 1.13 million, monthly repayments would increase from $ 3916 at the current rate to $ 5742 at the 2015 rate.
If interest rates rose to 2015 levels, it would cost thousands more each month, says Tom Lintern, chief scientist at Homes.co.nz.
The monthly rise in repayments was lowest in Christchurch, which had the lowest average price of any major center at $ 596,000. But the repayments would still increase from $ 2,065 to $ 3,028.
Many people have short memories and are used to a climate of falling interest rates, said Lintern.
“But it is important for aspiring homebuyers and homeowners to remember that interest rates are not going to stay at their current low levels forever and they need to be prepared for interest rate changes.”
He said people should speak to their bank or financial advisor about their options, but if it is possible it is a good idea to try to pay more than the minimum while interest rates are low.
While longer-term rates had already begun to rise, Westpac’s incumbent chief economist Michael Gordon said floating rates and shorter fixed rates are expected to remain stable over the coming months.
However, loan market mortgage advisor Bruce Patten said there was too much speculation about rate hikes, especially as the official cash rate had not yet been changed.
The rate hikes would likely come in an orderly fashion, and a 1 to 1.5 percent hike would likely be enough to contain inflation problems, he said.
“As a result, interest rates will level off in the high range of 3 percent or perhaps around 4 percent. Unfortunately, those who bought in the last 18 months will have the greatest impact. “
Many other homeowners crouched down to repay their debts while interest rates were low, he said.