Mortgage data confirms banks are well placed to help those in strife

Interest-only mortgage lending at record low. Photo / Ted Baghurst

New data supports commentary from banks that they’re “well placed” to support households facing rising interest payments.

A record low portion of mortgages are on interest-only repayment plans, suggesting banks likely have capacity to use this approach to accommodate borrowers under pressure.

Nearly 23 per cent of the $5.6 billion of new mortgage lending done in October was interest-only, according to just-released Reserve Bank figures.

This was the lowest portion since records began in 2016 and was well below the historic monthly average of 29 per cent.

As for the status of the existing stock of mortgage debt, the latest available data is only for September.

At that time, 18 per cent of the $337.4b of mortgage debt across the country was interest-only. Once again, this was a record low.

The portion of existing debt on an interest-only repayment plan has been tracking down since mid-2020 when it hit 27 per cent. It got as high as 29 per cent in 2016.

CoreLogic chief economist Kelvin Davidson noted investors use interest-only much more than owner-occupiers.

He said the figures were reassuring and validate what the Reserve Bank has repeatedly said about the financial system being strong.

"But what matters most, is what happens next," he cautioned.

Davidson said he'd started hearing anecdotes in recent weeks of an undercurrent of borrowers paying principal and interest, switching to interest-only. He said going interest-only could see borrowers face further problems down the track.

However, any such trends are yet to show in official figures.

New Zealand Bankers' Association chief executive Roger Beaumont responded to Wednesday's whopper 75-basis point official cash rate (OCR) hike, saying banks are well-placed to support the economy.

"They are well capitalised and are regularly stress-tested by the Reserve Bank," he said.

"Depending on your circumstances, there are a number of ways in which banks can help people facing financial difficulty. Your bank can work with you to develop a plan to suit your needs. Our banks are here to help."

As borrowers' mortgages roll over, they could face interest rates three times higher than what they were paying.

The Reserve Bank believes borrowers will be fine on aggregate, but acknowledges pockets of people will struggle.

The pinch could come if the recession the central bank is forecasting causes those with debt to lose their jobs.

Addressing Parliament's Finance and Expenditure Committee on Thursday, Reserve Bank Governor Adrian Orr assured banks having been testing new borrowers at interest rates above that which they take mortgages out at.

Urging banks to stick with their customers, he said deferring mortgage repayments or switching to interest-only could be options for borrowers under pressure.

Beaumont advised that those who are struggling speak to their banks as soon as possible.

"The sooner you talk to your bank, the more likely they'll be able to help."