Economic stress has a major impact on New Zealand’s housing sector, as rising interest rates and higher mortgage repayments stretch already tight household budgets. With the latest inflation figures showing price rises are not easing, the Reserve Bank of New Zealand could lift the OCR again this year to further dampen inflation. So, what should you do if you’re experiencing mortgage stress or are unable to cope with higher mortgage repayments?

High inflation, rising interest rates

Latest figures show inflation in New Zealand currently sits at 7.2 per cent, the highest it’s been in three decades. To dampen spending and control inflation, the Reserve Bank of New Zealand recently raised the Official Cash Rate (OCR) to 3.5 per cent, and has indicated it may do so again over the coming months.

Most lenders increased their fixed term interest rates in response to the increase in OCR, and the impact on homeowners of higher mortgage repayments in conjunction with the high cost of living is understandably concerning.

Economist Cameron Bagrie said every day Kiwis are already feeling some "real pain". And, while there are some positive signs, such as low unemployment and wages increasing, it does not offset the skyrocketing cost of the essentials.

If interest rates continue to rise, more Kiwis could experience mortgage stress. In particular, homeowners who are refinancing or refixing their home loan in the coming months, could be hit with a big hike in mortgage repayments after enjoying the record low interest rates of the previous few years.

Brad Olsen, principal economist at Infometrics said around 44 percent of mortgages are set to roll over in the next year, which will see interest rates jump for many, putting stress on people's finances. As the costs of basics get more expensive and mortgages increase, it’s likely Kiwis will need to clamp down further on spending which could actually help slow inflation. 

How to handle mortgage stress

Mortgage stress can be defined as a difficulty in paying everyday expenses while covering the rising cost of mortgage repayments. Mortgage stress is generally caused by an uncomfortable change in debt to income ratio because of a change to a financial situation or a steep rise in interest rates.

If you are experiencing mortgage stress, or you believe you may soon have trouble meeting your mortgage repayments, it’s vital you talk to your mortgage adviser or lender right away. Your mortgage adviser may be able to present your case to the lender for consideration or provide advice around possible solutions such as: 

• A hardship variation with a view to extending your loan term, taking a repayment holiday, or both.
• Debt consolidation to reduce high interest debt and help save on high interest charges.
• Mortgage refinancing or switching to an interest only loan for a short time.
• Selling your existing home and moving to a more affordable area, or downsizing to a smaller home. 

While it’s important to note that not all of these options will necessarily be available to all homeowners, and that the right financial solution will depend on your personal situation and your lender, these may be solutions you can take advantage of, even for a short time, until you are back on your feet again.

Get in touch with a Mortgage Express branded mortgage adviser who can help you plan ahead and ensure you are financially prepared for a change in financial situation or a time of economic uncertainty.