Westpac Data Says Households Paying Down Mortgages Increases By 2.2%
During 2021 the number of Westpac NZ home loan customers in a position to get ahead of their mortgage repayments has risen from 65.9% of customers, to 68.1%.
While an increase was seen across the board, some regions outstripped their neighbouring home owners. With the overall average “months ahead” sits at 10.5 months, Wellington took the lead with 75.2% ahead on their mortgages by an average of $18,252 aka 19 months ahead. Auckland is home to the largest average loan size but even there, customers were ahead of mortgage payments by an average of $16,188 – the equivalent of 9 months.
These numbers are interesting and potentially even higher than thought due to the methodology in place – in order to be included in the analysis household needed to be at least three months ahead.
"This means,” Westpac general manager of consumer banking and wealth, Ian Hankins said, “the true number of customers ahead of their repayments may be even higher, as there will be some who are one or two months ahead, who we haven't included in this analysis."
Hankins stated that "building up a savings or mortgage repayment buffer is a good way to help manage disruptions to the economy or changes to your own personal circumstances.”
To use this parlance, the data provided by Westpac NZ for the 12 month period between the end of December 2020 and 2021 shows that the ‘mortgage repayment buffer’ increased by $637 million over that time.
While this is amazing news for those households who are now in a better financial position coming out of the pandemic, it leads to question about the impact of rising interest rates and the effect CCFA (Credit Contracts and Consumer Finance Act 2003) regulation changes are having on supply and demand within the credit sector.
CCCFA Changes and the Effect on Credit Demand
The first wave of changes to CCCFA regulations came into effect from the 20th of December 2019, and the lase wave coming into force on the 1st of December 2021. This final wave arrived two months later than planned thanks to a September 2021 decision to push the compliance deadline from October 2021 to December 2021 due to Covid-19 impacts.
These first changes, in effect since 2019, include the introduction of penalties and statutory damages for breaching Lender Responsibility Principles, repossession enforcement abilities, and situational prohibition on the enforcement of guarantees.
The mass of changes that have followed since have been in a similar vein; lenders are restricted more stringently, advertising standards are higher, compliance to affordability and suitability inquiry obligations are more strictly monitored and enforced.
All in all, the changes mean a more highly regulated and monitored lending industry which will benefit those who manage to secure credit, and protect those who can’t afford it against predatory lenders - but simultaneously they do substantially raise the risk and compliance burden for retail lenders.
What this means in real terms is that because lenders will need to beef up their affordability and suitability inquiries (in order to comply with standards and avoid penalties for failing to do so) the application processes are likely to become longer and more complex across the board.
Across the board, in this case, meaning on all credit applications including personal loans, home loans, home loan top-ups, credit cards, overdrafts, increasing credit limits – even hire purchases.
While reducing the negative impact of predatory lenders on the public is an important issue, applying these new standards to all lenders including banks has the effect of making it harder for everyone to secure credit – even if you can definitely afford it.
Rising interest rates are having their effect on demand for credit also, with Official Cash Rate doubling from 0.25% to 0.5% in October 2021.
This increase had and immediate effect on anyone with a floating rate mortgage, but those on fixed rates are expecting a gut wrenching impact over the next 12 months as well. With the CoreLogic Property Market and Economic Update saying to expect around 60% of houses will be requiring refinancing in the next year – that’s a lot of New Zealanders about to be hit with a doubled interest rate.
While it could be said that fixed rate loan consumers have had time to prepare for the change, this is disingenuous and disregards the fact that a good many New Zealanders live pay check to pay check and doubled interest rates on their loans will certainly impact their household finance.
Supressed Demand for Credit Has Knock on Effect
The follow-on effect of the CCCFA regulation changes and increased interest rates is that fewer people will be looking to take on loans as they can’t stomach the application processes, decreased likelihood of success, and higher payments than they’ve ever expected.
This could very well mean a downward push on the property market, which in itself has long term repercussions for everyone – banks, home owners, renters, and first home buyers alike. Similarly, these factors may well influence business investment in New Zealand, both domestic and overseas, further effecting the economy and lives of the country as a whole.