Kerre Woodham Mornings Podcast Kerre Woodham: Do you have the ability and willingness to tighten your belt?
May 26, 2022
06:22
As you will have heard by now, the Reserve Bank increased the official cash rate by 50 basis points to 2 percent. This delivered what many commentators saw as a hawkish monetary policy statement, pointing to much higher rates ahead as it chases down inflation.
The Monetary Policy Committee says it sees the cash rate rising to at least 3.25 percent this year and that it was resolute in its commitment to ensure consumer price inflation returns to within the 1 to 3 percent target range.
We need to get inflation down, there's absolutely no doubt about that. That impacts everybody, impacts all of our wallets, but to do that is going to take a little bit of pain.
And although UM changes to first home grants and first home loans will technically enable more New Zealanders to access support to get into their first home.
New Zealanders and, particularly first home buyers, are looking at the housing market.
They're looking at the Reserve Bank.
They're looking at the increase in mortgage rates and thinking, maybe we hold off just a wee bit longer.
In the second half of 2021, 26 percent of homebuyers were first home buyers and the first three months of 2022, 22.5 percent of all buyers were first home buyers.
So people are looking at the market, they're looking at the domestic economy, they're looking at the global economy, and they're thinking “should we just hold off?”
They're also thinking that if mortgage rates are getting higher and you need to be able to supply more evidence that you can serve as a higher mortgage rate, we can't do it.
It's not that we don't want to, but we just don't think we'll be able to meet the threshold.
For those who are holding off I would love to hear the reasons.
Is it because you worry about your capacity to serve as a mortgage as interest rates go up?
Is it that the increase in deposit that the banks were asking for is making you hold back?
Are you waiting to see what happens in the world before you commit to a mortgage?
For those who already have mortgages, for those of us who bought homes for eye-watering amounts of money over the past two years, it's all very well and good for the banks to say look, don't worry about it.
“We stress test.”
“We don't look at your ability to pay the mortgage. We look at your ability to pay a mortgage that is set at a far higher interest rate, so we're not surprised and you're not surprised.”
When interest rates go up, mortgage rates go up and all of a sudden you have to spend more on your mortgage.
You will be able to do so in theory, but theory is quite different from practice.
And what about those who are already running pretty tight?
Things are getting tough, and how are you going to cope?
If you are looking at buying a first home, are you holding off because you're choosing to?
You're looking at the circumstances around the world and in this country you're looking at the news headlines.
You're thinking, well just wait a bit.
Or are you holding off because, with the new interest rates with the new deposit requirements, you don't think you'd be able to service that loan?
And for those who already have mortgages, as the Reserve Bank hunts down inflation and raises the cash rate, the interest rate and the mortgage rate.
Do you have the wiggle room to get through this rocky patch? I’d imagine there could be two to three years of it, that's what it generally is.
Do you have the ability and the willingness to tighten your belt?
The Monetary Policy Committee says it sees the cash rate rising to at least 3.25 percent this year and that it was resolute in its commitment to ensure consumer price inflation returns to within the 1 to 3 percent target range.
We need to get inflation down, there's absolutely no doubt about that. That impacts everybody, impacts all of our wallets, but to do that is going to take a little bit of pain.
And although UM changes to first home grants and first home loans will technically enable more New Zealanders to access support to get into their first home.
New Zealanders and, particularly first home buyers, are looking at the housing market.
They're looking at the Reserve Bank.
They're looking at the increase in mortgage rates and thinking, maybe we hold off just a wee bit longer.
In the second half of 2021, 26 percent of homebuyers were first home buyers and the first three months of 2022, 22.5 percent of all buyers were first home buyers.
So people are looking at the market, they're looking at the domestic economy, they're looking at the global economy, and they're thinking “should we just hold off?”
They're also thinking that if mortgage rates are getting higher and you need to be able to supply more evidence that you can serve as a higher mortgage rate, we can't do it.
It's not that we don't want to, but we just don't think we'll be able to meet the threshold.
For those who are holding off I would love to hear the reasons.
Is it because you worry about your capacity to serve as a mortgage as interest rates go up?
Is it that the increase in deposit that the banks were asking for is making you hold back?
Are you waiting to see what happens in the world before you commit to a mortgage?
For those who already have mortgages, for those of us who bought homes for eye-watering amounts of money over the past two years, it's all very well and good for the banks to say look, don't worry about it.
“We stress test.”
“We don't look at your ability to pay the mortgage. We look at your ability to pay a mortgage that is set at a far higher interest rate, so we're not surprised and you're not surprised.”
When interest rates go up, mortgage rates go up and all of a sudden you have to spend more on your mortgage.
You will be able to do so in theory, but theory is quite different from practice.
And what about those who are already running pretty tight?
Things are getting tough, and how are you going to cope?
If you are looking at buying a first home, are you holding off because you're choosing to?
You're looking at the circumstances around the world and in this country you're looking at the news headlines.
You're thinking, well just wait a bit.
Or are you holding off because, with the new interest rates with the new deposit requirements, you don't think you'd be able to service that loan?
And for those who already have mortgages, as the Reserve Bank hunts down inflation and raises the cash rate, the interest rate and the mortgage rate.
Do you have the wiggle room to get through this rocky patch? I’d imagine there could be two to three years of it, that's what it generally is.
Do you have the ability and the willingness to tighten your belt?
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