New Zealand households are now borrowing more relative to their disposable incomes than they did before the global financial crisis when a red-hot housing market was encouraging consumers to tack a little onto the mortgage to pay for big ticket purchases.

Kiwi household debt is now a record 167 per cent as a proportion of disposable income, and New Zealand Institute of Economic Research senior economist Christina Leung says that's a key risk to the economy.

Reserve Bank data show total household borrowings were up 8.7 per cent to $248.16 billion in January from a year earlier. The bulk of that was in housing, which was up 9 per cent at $232.07b.

However, a 4.6 per cent increase in consumer credit to $16.1b continued a trend of accelerating growth.


"With consumers feeling more confident about discretionary spending we're seeing a pick-up in consumer credit growth," Leung said.

"There are two key risks from these growing debt levels in terms of serviceability: interest rates are likely to be on the way up, and the potential for a downturn in the labour market meaning reduced incomes for households."

The Reserve Bank is watching local consumer spending closely after being surprised by an acceleration in consumption through the second half of last year.

Record levels of net inbound migration and tourism have been bolstering the country's retail sector, while at the same time jobs have been plentiful enough to meet the demands of an expanding population, with high participation rates and unemployment by global standards.

RBNZ governor Graeme Wheeler today reiterated his fears about the local housing market, which has faced an imbalance between supply and demand, pushing up prices at a time when tepid inflation called for record low interest rates.

While he noted there's been some moderation in house price inflation in recent months, those imbalances and the debt servicing costs will "likely be important influences on household spending and the level of aggregate demand in the economy".

Wheeler reaffirmed the central bank's view that the official cash rate was unlikely to move from the 1.75 per cent level it's currently at until mid-2019, although NZIER's Leung expects the RBNZ will move next year as inflation returns to the 2 per cent mid-point of the bank's target band.

Lenders are already raising mortgage rates as credit growth outstrips their ability to fund it through term deposits, forcing them to raise money from more expensive international wholesale markets.


"We do expect these trends to continue and for further lifts in mortgage rates over the coming years," Leung said.

Still, the RBNZ will "wait and see and remain on hold until the middle of next year" to ensure consumer prices start rising before moving the OCR.

Once interest rates do start rising, Leung said the "highly indebted household sector is a key risk to watch out for in terms of how this increasing debt will be serviced".