The RBNZ mentioned the projection in its biannual Financial Stability Report, released this morning.
However, it noted that even if the non-performing housing loans ratio hit 0.7 per cent, it would still be half of what it was during the 2009 Global Financial Crisis.
Indeed, unemployment is lower and strong nominal wage growth in recent years has helped borrowers.
“Arrears are expected to rise as some borrowers continue to roll on to even higher mortgage rates, albeit with the bulk of the transition already complete,” the RBNZ said.
About 90 per cent of the country’s fixed mortgage debt is now on an interest rate above 4 per cent.
The RBNZ expected the average interest rate paid by those with mortgages to rise from around 6 per cent in February to 6.5 per cent by the end of the year.
Back in 2021, the average interest rate being paid by mortgage holders was only 2.8 per cent.
The RBNZ made the point that it takes time for the fallout from high interest rates to be seen, as borrowers burn through their savings and other buffers before missing repayments.
“However, banks have reported to us that on average, borrowers still have capacity to handle high debt servicing costs, either through reducing principal repayments or drawing on savings buffers,” the RBNZ said.
It also noted banks are well placed to absorb losses and support their customers.
“With mortgages making up around 60 per cent of bank lending, increased mortgage losses are likely to affect bank profitability,” the RBNZ said.
“However, very few households are in a position of negative equity and banks would likely face relatively small losses in the event of an increase in borrowers defaulting.”
Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
