28 Mar 2009

Households 'well insulated' against recession

7:34 am on 28 March 2009

A Reserve Bank paper has found households are in a strong financial position to cope with the economic downturn.

It says household debt rose substantially from 2001 to 2007, but that does not pose a significant threat to financial stability in New Zealand.

The paper argues that most households are reasonably well insulated against the worst effects of recession.

It says 65% of households do not have mortgages and of those that do, 80% have mortgages of less than $200,000.

High income earners are responsible for 70% of total household debt while debt burdens for low-income households have fallen.

The paper concludes that only in a severe stress scenario - where unemployment rises substantially, house prices collapse and interest rates go up - would a substantial proportion of households be at risk.