12 Apr 2017

Mortgage rate rises could hit ill-prepared hard

7:37 pm on 12 April 2017

Rising interest rates are expected to pose little difficulty to most borrowers, but a significant minority seem ill-prepared and might do themselves longer term financial harm, a new survey has found.

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Photo: 123rf

The Bank of New Zealand financial futures survey showed 70 percent of the 2000 borrowers surveyed expected higher interest rates this year.

BNZ director of retail and marketing Paul Carter said most borrowers would comfortably cope with an increase of $80 a fortnight in mortgage repayments, largely by cutting back on luxuries and discretionary spending.

He said many would also be able to handle a fortnightly increase of up $120 in servicing costs, but at that level some worrying trends started to appear, such as asking for their mortgage term to be extended or expecting to dip into retirement savings.

"It's a concern that people would consider extending the term of their mortgage because that will cost them more money over time, or that they would look at cutting back on essentials like power, or their retirement."

One in five respondents said they would ask their bank to add to the length of their mortgage or tap retirement savings to cope with increased payments.

Mr Carter said most people had leeway in their budgets to cope with higher debt servicing costs, but quick-fix solutions would cost them in the long run.

He said people with mortgages should be reviewing their household spending now and looking at issues such as whether to fix some or all of their mortgages while interest rates remained relatively low.

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