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National

Winter is coming for mortgages and rents

As Kiwis take out even more personal loans, and stop paying their mortgage in ever larger numbers, the Reserve Bank Te Pūtea Matua chose today to increase its official cash rate by another five basis points, which is expected to hit people with mortgages, renters and employers.

The Reserve Bank had lifted the OCR sharply in both December and February reviews and most economists had predicted the central bank would raise the OCR today by only 25 basis points to combat continuing inflation. They were among commentators flummoxed by the wintry approach.

Inflation is still running at 7.2% and is expected to take some time to return to the bank’s target range of 1-to 3%.

The Reserve Bank’s contrary view was that activity was lower than expected at its last update in February but it pointed to the inflation risk of the cyclone recovery, and a softening in international wholesale markets which had reduced local bank rates.

Consumer credit bureau Centrix’s latest creditor indicator report notes the February rise resulted in rising interest rates for most Kiwi households across the board.

Mortgage arrears climbing

“Coupled with fixed rate home loans rolling off and having to commit to higher repayments, the cost-of-living squeeze continues to impact many households nationwide,” the bureau said.

“Our latest data shows mortgage arrears climbing for the seventh consecutive month, which could point to many being unable to service these higher mortgage rates – a difficult situation for anyone to be in.”

Demand for both mortgages and buy-now, pay-later remained down, with new customer enquiries for the latter reaching the lowest level recorded since July 2017.

Centrix said nearly 330,000 New Zealanders have unsecured personal loan debt, of which there are over 60,000 borrowers holding many personal loans.

Centrix managing director Keith McLaughlin said for anyone struggling to make ends meet financially, it was important to minimise the long-term impact of these challenging times.

“Now’s the time to speak to your credit provider or seek the advice of a financial expert and plan for repayment obligations to avoid financial trouble in the future,” he said.

Leading economists are now saying this year’s central bank-engineered recession may be deeper and longer, thanks to today’s decision.

Meanwhile, central banks in both Canada and Australia have been less gung-ho.

On Tuesday, Australia’s central bank left its cash rate unchanged at 3.60% and said the board recognised that monetary policy operated with a lag and that the full effect of this substantial increase in interest rates was yet to be felt.

The Canadian central bank said inflation was projected to fall to around 3% in the middle of 2023 and reach the 2% target in 2024,” it said. Inflation was 5.2% in February, according to Statistics Canada. It was at 6.8% in December.