New figures show the extent to which the prudence of some mortgage holders will soften the blow to the economy of rising interest rates.
About 44 per cent of mortgage holders were ahead of their repayments in the second half of 2021, according to data the country's 10 main retail banks provided the New Zealand Bankers' Association (NZBA).
NZBA chief executive Roger Beaumont said these mortgage holders likely kept their repayments the same while interest rates fell to record lows.
"Depending on their loan, others may have increased their repayments further to get ahead and repay their loan more quickly," Beaumont said.
"This shows good financial capability among people with home loans. It also means they're quite well placed in an environment of rising interest rates."
CoreLogic chief economist Kelvin Davidson explained mortgage holders who kept their repayments up would be cushioned from the impact of rising interest rates – at least initially.
He said it was reassuring 44 per cent of mortgage holders did so, given the large amount of mortgage debt due for refixing this year.
The NZBA didn't say how ahead mortgage holders were of their repayments. Nor did it comment on how mortgage holders are faring now that interest rates are higher than they were in 2021.
It did however suggest more mortgage holders came under pressure when interest rates started rising in the latter half of 2021.
The NZBA said around 1.3 per cent of home loan customers switched from "principal and interest" to "interest only", an increase of 33 per cent from the first half of 2021.
These figures are interesting in the context of the debate under way over how much of a cooling effect rising interest rates will have on the economy, given the pace at which the Reserve Bank is tightening monetary conditions, and the amount of mortgage debt the country has.
The value of New Zealand's mortgage debt sat at $330.2 billion at the end of March, according to the Reserve Bank. That's only around $20b shy of New Zealand's annual gross domestic product.
While some economists are confident the Reserve Bank will be able to lift the official cash rate (OCR) in successive large increments of 50 points to around 3.5 per cent, others believe it will have to take it easy after it lifts the rate by an expected 50 points to 2 per cent on Wednesday.
The OCR was last at this rate – broadly deemed neither contractionary nor stimulatory – in 2016.
It was less than eight months ago that the OCR was 0.25 per cent, and 10 months ago that the average two-year mortgage rate bottomed out at 2.53 per cent. It's currently 5.13 per cent.
Someone with a $300,000 30-year mortgage would face repayments $444 a month higher (at $1634) if they were on the current average two-year rate, versus the average two-year rate 10 months ago.