Homeowners feel pinch of mortgagee sales

The economic recovery might be under way, but many Kiwis are still struggling to pay the mortgage and being forced out of their homes.

Latest figures from property and land information company Terralink show there were 287 registered mortgagee sales in November – down slightly from the previous month but still significantly higher than the 148 sales in November 2008.

And there is little relief in sight, with Terralink managing director Mike Donald saying forced sales were likely to remain high in 2010 – despite reports that the economy was now in recovery.

Mortgagee sales form a strong economic indicator and give an insight into how household budgets are tolerating factors such as unemployment and interest rates.

In 2007, before the recession kicked in, there were around 40 mortgagee sales a month.

Last year that average jumped dramatically to 250 a month.

Donald said the slight drop in sale numbers between October and November did not indicate a downward trend and while much of the mortgagee pain was borne by investors and developers in the first part of 2009, ordinary "mum and dad" homeowners with one property to their name were also hit hard.

"As the year went on and the effects of the recession deepened, it was increasingly individual owners with a single property, typically the family home, who were losing their properties to mortgagee sales.

"Once we have December's data, we'll be able to track the full 12 months and have a complete picture of the effect the economic downturn has had on mortgagee sales," Donald said.

In November mortgagee sales made up 5% of all house sales or one in every 20 sales – a number that Donald says is telling.

Auckland, Otago, Nelson and Northland all experienced an increase in mortgage sales in November compared to the previous month, while the rest of the country either decreased or remained the same.

But Donald does not expect any significant decreases in mortgagee sales as the year progresses, mostly because of the lag in effects of the recession.

Unemployment is currently 6.5% and expected to rise by the middle of the year before improving – meaning many people are still struggling to pay the mortgage. "By the time a mortgagee sale is necessary, a person has probably experienced a long period of financial woe. Forced sales don't happen overnight."

Financial commentator Bernard Hickey from interest.co.nz predicts further tough times ahead for homeowners with interest rates picked to rise, tougher lending criteria from banks and uncertainty around property tax law changes. "There are plenty of clouds on the horizon for the housing market."

Last week the Reserve Bank signalled its intention to hike the official cash rate around the middle of year, which will result in increased mortgage rates.

Hickey points out this will first hit people on variable rates, which have become increasingly popular as fixed rates get more expensive.

Variable rates are now as low as 5.59%, while a fixed two-year rate could be as high as 7.55%.

Latest figures show the percentage of homeowners on variable rates has doubled to 25% over the last 18 months. "That means when the Reserve Bank does start increasing mortgage rates the impact will be more immediate."

Potential tax changes that could remove some of the current tax advantages of owning investment property, as proposed by the government's Tax Working Group, were also causing some uncertainty. "I think there is a big mood for change, not only publicly but within the policy-making circles, and we saw that with the Tax Working Group."

ASB chief economist Nick Tuffley says banks' borrowing costs had increased and while that didn't automatically mean tighter lending criteria, it will mean higher costs for borrowers.

Tuffley says the latest property sales figures hint at some moderation returning to the market which, for the most of the year, had been characterised by a lack of listings, meaning prices were pushed up by demand. But figures for November and December showed listings had fallen and days to sell had increased.

"I think we're going through a period where household borrowing demand is quite moderate. It's going to be quite a different environment to the last boom where households were quite happily paying 9-10% for a mortgage because they just had to have the house or their 13th investment property."

For more mortgagee information check:www.zoodle.co.nz

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