Table of Contents
I saw a comment on Twitter from someone who claimed that his mortgage of approximately $350,000 was going to cost him about $7,500 more a year because of interest rate increases. I thought these numbers simply didn’t stack up. That is a very big increase in mortgage payments at a time when the cost of everything is increasing: fuel, power, food…he is going to be a lot worse off from now on.
But it looks to be true. The majority of home loans rates are over 5% now and are expected to be increasing to 6% or more fairly soon.
In very simple terms, a mortgage of $1 million may cost about $35,000 more in interest than it did just one year ago.
And, as usual, it is first time buyers that will feel the pain most of all.
First home buyers borrowed $17.88 billion across 32,493 separate loans last year. That borrowing was nearly $8b higher than in 2017, when first home buyers borrowed $10b across 23,702 loans.
A Reserve Bank paper from September last year warned these people could face “serviceability stress”. That does not mean the borrower would default, but instead measures the number of people who would need to “sharply reduce their living expenses” to keep on top of their mortgage.
How do you sharply decrease your living expenses when the cost of everything is going up around you?
The government just blames world events – the war in Ukraine, the pandemic, supply chain issues – when it did not need to print so much money. The amount of money wasted, and still being wasted by this government (for example on continued vaccine advertising in some weird pidgin language night after night on TV when everyone who is going to get vaccinated has almost certainly done so), is unforgivable. You have to wonder how much less money they could have printed if only they had shown a little bit of financial prudence.
But Margaret Thatcher turns in her grave. Our socialist government has not only run out of other people’s money, but it printed lots more than necessary so that it could splash it around. Now we all pay the price.
Then there is this little kicker.
One person about to battle higher mortgage rates is [mortgage broker Bruce] Patten’s son, Liam, who bought his first home in Pakuranga heights last year.
Liam said he was “a bit worried” about borrowing costs increasing when his fixed term ends next year.
He estimates his annual borrowing costs could jump by an additional $25,000 once he comes off his fixed term.
Liam has turned his garage into an extra room and living space, where he lives so he can rent out the house.
Otago Daily Times
Good luck with that. Interest deductibility on rental property mortgages is being phased out, thanks to our ‘kind’ government. There is no relief anywhere.
Unsurprisingly, the MYOB 2022 Business Monitor shows 68% of small and medium businesses expect economic conditions to worsen over the next 2 months, while 60% express dissatisfaction with the government’s performance.
If that means 40% approve of current government performance, they must be living under a rock… or contract their services to government departments.
Truth is, we will start seeing mortgagee sales before too long. Inevitably, it will be first-time buyers or people who lose their jobs, and there may be many more of those in the near future.
People are being squeezed already. Everything is more expensive. How are people going to be able to pay for all that? Nobody voluntarily gives up on paying their mortgage but with the unprecedented jumps in interest rates, many will find themselves under pressure. What will they do? They will close their wallets, spend as little as possible and try to get through it. So, their entertainment budget will be cut, all discretionary spending will be reduced and they will settle into survival mode. This means that large areas of the economy, such as tourism and hospitality, already weakened by the pandemic, will continue to hurt and no amount of toothy smiles from our hopeless prime minister is going to fix that.
Don’t forget that the government already fudges the unemployment numbers. You do not count as unemployed if you have not been actively seeking work for the past 4 weeks. Such a narrow definition allows them to claim the lowest rates of unemployment ever. As the borders open and our skilled people leave (I know this, sadly, from personal experience), Jacinda just seems to think that we will magically replace them with other skilled people.
I am still trying to figure out why any skilled people would want to come here. They won’t be able to get rental accommodation, they will probably be unable to buy a house, salaries are low, everything is ridiculously expensive… why would anyone actually come here?
She doesn’t have a clue. But her government will be the one that goes down in history as having trashed a ‘rock star economy’ in 3 short years, by printing money and blaming everything and everyone else. Quite a legacy she has there.
