The Reserve Bank is warning about negative equity as house prices drop and interest rates rise in the face of inflation. Photo / Rafael Ben, 123rf, File
The Reserve Bank is warning about negative equity as house prices drop and interest rates rise in the face of inflation. Photo / Rafael Ben, 123rf, File
Financial experts say homeowners do not need to panic in the face of negative equity and rising interest mortgage rates.
This week the Reserve Bank issued warnings about negative equity as house prices drop and rising interest rates in the face of inflation.
Enable Me financial adviser Katie Wesney said headlines on negative equity and high interest rates were scary, but they were affecting only a small proportion of people.
“Generally speaking, it’s first home buyers who happened to buy at the peak last year and that is cold comfort for those people, but we have to put it into context.”
However, for those needing to sell or increase their lending, Kiwibank head of home and investment products Chris Greig said that was when “value” came into play.
“I think that’s where people would have to consider whether that’s the right thing for them to do” and why they would “be in a position to do that”.
For those facing financial hardship from high-interest rates, as long as customers talked to the bank early on, they could usually assist and help people through the situation they were in, he said.
Meanwhile, banks are being urged to step up and support families and businesses coming under financial strain as the pressure comes on from rising interest rates.
The plea comes from the Reserve Bank in a report outlining the challenges in the fight against inflation, which also includes the potential for higher unemployment.
The Bankers Association said anyone experiencing financial difficulty should make it a priority to contact their bank to discuss their options.
Its chief executive Roger Beaumont told RNZ’s Morning Report the fact New Zealand’s banks were in good financial shape would help the country weather the economic storms that were “inevitably coming”.
Roger Beaumont, chief executive of the New Zealand Bankers Association. Photo / Dean Purcell
“Having strong banks [that] are robust, [that] can steer into those storms, will enable the economy to get through.”
People who were facing any significant change in circumstance that would cause them difficulty paying their mortgage - such as losing their job - should ring their bank immediately, he said.
“If you’re having financial difficulty it’s best that you talk to your bank and map out a plan for what you can do.”
He defended the banks’ profit margins saying they were operating in a competitive market but that the lenders understood their social responsibilities to customers.
“Banks need to be strong economic forces in any economy and banks are solid institutions in New Zealand.”
Beaumont said people having to re-fix their mortgages at higher rates would be experiencing “a material change” in terms of their household outgoings.
However, he noted that serviceability margins were included when banks determined whether loans should be approved, meaning most customers should have some buffer that allowed them to absorb the increased costs.
