Modest rise in consumer confidence but households set for disposable-income boost as mortgage rates fall

One-year mortgage rates have fallen roughly 200 basis points since last year, leaving households with more money in their back pocket. Photo / NZME

Consumer confidence continues to tread water, but households could soon receive a back-pocket boost in the hundreds of dollars, says a Westpac economist.

The Westpac McDermott Miller Consumer Confidence index rose two points to 91.2 in the June quarter.

Westpac senior economist Satish Ranchhod said it was a modest rise after the sharp eight-point fall last quarter and leaves consumer confidence a fair bit below average levels.

Anything below 100 indicates a pessimistic view.

“It’s been a bumpy and uncertain few months, and many New Zealand households are feeling nervous about the economic outlook,” Ranchhod said.

“Cost of living pressures continue to be a big concern for many households, particularly those on lower incomes.

“Recent months have seen large increases in the cost of essentials like food and utilities. Consistent with that, many households have told us that their financial position has deteriorated over the past year.”

Yesterday, Stats NZ said food prices increased 4.4% in the 12 months to May this year, following a 3.7% increase the previous month.

However, Ranchhod said it wasn’t all bad news for households, with falling interest rates set to boost their disposable incomes over the coming months.

Some fixed mortgage rates are down around 200 basis points (bps) compared to this time last year, he said.

For an average mortgage of around $380,000, the roughly 200bps drop in the one-year mortgage rate over the past year could reduce monthly mortgage payments by around $400, or roughly 4% of the average borrower’s disposable income.

Ranchhod said this is one of the largest falls in household debt servicing costs in the past 30 years.

“While it will take time for those cuts to pass through to borrowers, many households will see a boost to their disposable incomes over the coming months. In some cases, the drop in their borrowing costs could be substantial,” he said.

The latest Westpac McDermott Miller Consumer Confidence index showed some big differences across the regions.

“Confidence remains in the doldrums in Wellington. In contrast, households are more upbeat in regions that have a strong rural backbone or tourism ties, especially in the lower South Island,” Ranchhod said.

Across the demographics, men’s confidence remained steady in the June quarter, with an index score of 96.5 – a drop of 0.9 points from last quarter.

Women’s confidence lifted 5 points to 86.4.

“More women than men feel worse off financially now compared to a year ago, while men are more optimistic than women about New Zealand’s short-term economic future, as well as the country’s longer-term prospects,” said Imogen Rendall, market research director of McDermott Miller Ltd.

Rendall said confidence among younger people also took a hit in the quarter and was now on a similar level to that of older New Zealanders.

Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics including retail, small business, the workplace and macroeconomics.