With experts saying global recession is coming sooner than people think, New Zealand banks are bracing themselves for its impact on the property market.
According to Stuff.co.nz, even a moderate slide in house price would prompt banks to recalculate the mortgage interest rates of some homeowners the next time they refixed their loans.
Banks charge lower “special” interest rates if a borrower has more than 20% equity in their home but a slide in prices would make any homeowner slip below that level – facing higher mortgage rates.
“They would say you don’t qualify for the special rates,” Karen Tatterson, mortgage broker at Loan Market, told Stuff.co.nz.
ASB’s current two-year fixed rate for those who have more than 20% equity in their homes was 3.69% compared to 4.19% for those with less than 20% equity.
Read more: Experts share how borrowers can take advantage of low fixed rates
Hugh Pavletich, affordable homes campaigner, emphasised the risk of “multiple stretch,” where young homebuyers borrowed far in excess of three and a half times their gross incomes.
“The bigger the stretch, the bigger the problem,” Pavletich told Stuff.co.nz.
Meanwhile, Reserve Bank’s limitations on the amount of bank lending to people with less than 20% deposits had reduced the proportion of recent homebuyers at risk of negative equity.
The bank estimated that at the end of May, fewer than one in 100 Auckland homes with mortgage were in negative equity – excluding a deduction for real estate fees. It also estimated that at the end of June, just below 3% of mortgage debt would be owed by homeowners in negative equity if ever the property market fell by 10%.