Inflation, Interest Rates, Recession: The 2022 Wrap Up

Firstly, we want to thank all of our customers, banks we have worked with and business partners for making 2022 such a successful year.

We hope you all have a wonderful holiday celebration with your friends, families and loved ones.

We’ll be taking a short break over Christmas, closing on the 23rd December and returning on 17th January.

Now, let’s take a look at how the year finished…

2022 Wrapped Up

2022 is drawing to a close. Will the year finish on a high?

Inflation, interest rates, property prices and a potential recession are all playing on everyone’s minds.

So, what are we dealing with?

Let’s look into all these aspects in a bit more detail so that you can have peace of mind heading into Christmas.

Interest Rates Are Up… Again

On 23rd November, the Reserve Bank announced that they have raised the OCR again in a bid to control inflation. The cash rate has now lifted to 4.25% from the previous rate of 3.5%.

While the Reserve Bank feels the rise is necessary, “an expert says it’s the biggest increase since the OCR was introduced in 1999 – and there is still a real chance New Zealand could fall into a recession.” [source] So, what does it mean for you?

“It’s certainly clear that interest rates are much, much higher than they were a year ago or eighteen months ago. And that hasn’t been entirely expected by everyone so, it is a bit of a shock and as we’ve heard, people are struggling with the cost of living so it’s a bit counter-intuitive to pile another greater cost of living on to people.

But the fact is, the only way to get on top of inflation is to actually cool spending down.” [source]

There is some good news though. If you have savings in the bank, deposit rates are going up. So, you could see a positive impact on your savings. [source]

What Do Higher Mortgage Rates Mean?

Every month, we hear talk of mortgage rates rising, and this month is no different. But, what does it mean in practical dollar terms for the average New Zealander?

Well, “ASB senior economist Mark Smith said the average rise in household debt servicing costs would be $80 per week by the end of next year and $100 by the end of 2024.” [source]

Of course, it is all dependent on the level of debt that you have. The average mortgage for a first home buyer is currently sitting around $600,000. And those that have a significant amount of debt will obviously feel the effects of the interest rate rises more heavily.

“RBNZ figures show a person could have fixed a loan for two years at the end of 2020 at 2.59%. When it is refixed at the end of this year, that person will pay an equivalent rate close to 6.75%. On a mortgage of $500,000, those payments would be an extra $300 per week.” [source]

The best solution is to chat with an experienced mortgage broker if your fixed term mortgage is coming up for renewal. We can provide advice on the best structure for your individual needs and secure the best rates possible.

More Kiwis Are In Debt

It’s no secret that inflation has been rising, and as a result, we are paying more for the same goods and services than we were a year ago. This has a knock on effect, making it harder for some families to meet the repayment costs. There has also been a higher level of borrowing.

The number of New Zealanders who are behind on their repayments is up by 5% compared to October last year, payments are overdue on 15,200 mortgages, personal loans are up by 18.1% and vehicle loans are up by 17.3%. And, as a sign of the times, mortgage lending is down by 36%. [source]

We aren’t out of the woods yet, as it is unclear what the financial future holds for everyday New Zealanders. So, if you are feeling the pinch, our best advice is to have a chat with a financial advisor like the team here at Mortgage Suite to see if there are better options for your current debt. We may be able to restructure your existing loans or consolidate for easier repayments.

House Sales Are Slow, But Still Happening

You might be thinking that house sales have ground to a halt with the ever increasing mortgage rates and rising inflation. But that actually isn’t the case! Houses are definitely still selling.

Barfoot & Thompson reported selling 700 properties in November, which was up from 627 in October. While down 41% from the 1182 that were sold last November, it is still the highest monthly number of homes sold in the last six months. [source]

“Property is selling, albeit at a level lower than at the same time last year. What it demonstrates is vendors and buyers are reaching an agreement as to where prices are at,” says Thompson. [source]

The average sale price for the month of November was $1,153,795. It should be noted that this was influenced by a number of purchases in the $2 million and above price bracket, but also a number of first home buyers in the under $750,000 category [source]. So, quite a spread across the market.

What does that mean for the average New Zealander? Well as a buyer, there are plenty of properties to choose from, in fact, buyer choice has rarely been greater. And as a seller, it is still possible to sell your home for a fair price. But, before doing anything, both sellers and buyers should chat with an experienced mortgage broker to check the financial viability of any property transaction.

Borrowing Capabilities

Borrowing money in the new year will be somewhat different. Property prices are falling and there is increased stock on the market, so competition between buyers may reduce. Each bank has its own assessment criteria and there are significant variations between lenders, some as much as $300k up or down.

There are also a number of other things to consider:

• Debt to income restrictions (this may impact the amount you can borrow)
• LVR restrictions (causing issues for investors)
• Rising interest rates (meaning your repayments will be more for the same borrowing)
• Restrictions from the CCCFA
• Rental income shading – with only 60% in play when it used to be 80%

Coupled with the uncertainty of the property market, rising inflation and the state of the global economy, borrowing is not going to be an easy process in the coming year. That’s why it is always best to seek the advice of an experienced mortgage expert, like the team here at Mortgage Suite.

Are We Facing A Recession?

Recently, we have been hearing whispers of the “R” word being mentioned… Recession. So, is one on the way and should we be prepared for it?

Word on the street is, not yet.

GDP figures are due from Stats NZ on Wednesday and the prediction is that there will be “lower yet significant quarterly growth”. They are expecting that growth to slow in 2023 and 2024, which could potentially bring the start of a recession.

“However, the consolation prize for that – lower interest rates – could still be some way off.

‘We think it will be mid-2023 before the Bank will be comfortable with where OCR settings are sitting to pause the tightening cycle, and mid-2024 before it is prepared to start bringing the OCR down,’ the ASB team wrote.” [source]

Basically, a recession has not arrived yet. But, it is expected to arrive in the coming quarters, with high interest rates likely to stick around until that happens. So, you want to make sure you are in the best financial position possible. If you have fixed mortgage terms coming up for renewal or you are starting to feel the financial squeeze, now is the time to chat to the friendly team at Mortgage Suite.

Drop us a line today.