150,000 households face mortgage stress

Nearly 150,000 New Zealand households are at "extreme risk" of missing mortgage repayments and potentially losing their homes.

They're part of a much larger group of almost a quarter of a million Kiwis or 22 per cent of people with a home loan who are in "mortgage stress", according to new research by Roy Morgan.

Roy Morgan New Zealand finance industry director Mark Dansey said that would have severe consequences for the New Zealand economy because of the impact on retail sales and a general slowdown in all spending.

Dansey said mortgage stress meant more than 30-45% of household income was being spent on mortgage repayments.

The number of Kiwi households "extremely at risk" has jumped from 85,000 mortgage holders in 2002 (8.6%) to 147,000 last year (13.7% of all mortgage holders). This group was spending more than 30-45% of their income on interest payments alone.

The jump in mortgage stress has been driven in part by interest rates that have climbed from 6.7% on a floating rate for new mortgages in early 2002 to 10.42% by December 2007. Real house prices have also risen 80% since 2002.

The measure is on a sliding scale, with a household earning less than $60,000 judged to be under stress if spending more than 30% of its income on mortgage repayments, and a household on over $100,000 under stress if spending more than 45% of its income on mortgage repayments.

And relief may be some time away as last week's Budget tax cuts may end up a bittersweet experience for these heavily indebted homeowners.

Gains from tax cuts that begin on October 1 could be at least partially wiped out by delays in the Reserve Bank lowering interest rates, because of fears about the inflationary impact of the $10.6 billion tax package.

A cut in the Reserve Bank's official cash rate of 0.5%, which had been expected in September, would have saved $19 a week on a $200,000 floating mortgage.

Those cuts are less likely to go ahead because of the potential inflationary impact of the tax package, said BNZ chief economist Tony Alexander.

Reserve Bank governor Alan Bollard will have to weigh up mixed signals that the economy is cooling, with growing job losses. Against that are the inflationary pressures from the four-year tax cuts package and from soaring oil prices.

Last week's tax cuts will deliver cuts of between $12 and $28 a week for fulltime earners on October 1, rising to between $22 to $55 a week by April 2011. Working for Families payments will also rise from October 1.

But Cullen told the Star-Times the tax package had been designed carefully to avoid interest rate rises.

"The government is aware that for many people mortgage repayments are a significant stress right now. With the increase in food and petrol prices also hitting household budgets, the credit crunch could not have come at a worse time for families with mortgages," he said.

National leader John Key now faces a fine balancing act in designing his own party's tax cuts, a package he has said will be announced five or six weeks before the end-of-year election. Asked if his tax cuts package would be bigger than Labour's, Key said "in some respects it's likely to be bigger, in others it's likely to be the structure and the design will be better".

And he suggested not all New Zealanders would be better off under National's package. "I think there's no question that some New Zealanders will get more than they're currently getting under this package," he said.

The Roy Morgan research is based on nationwide polling of 20,000 households in 2002 and 2007.

- © Fairfax NZ News