New Zealanders have taken full advantage of the property boom by borrowing $14 billion on their mortgages in the past three years to spend on items other than their homes, says a Treasury paper in the Budget.
The paper says the value of housing assets have more than doubled to
$500 billion since 2000 and New Zealanders have cashed up some of this wealth gain.
But Treasury said that the rate of mortgage borrowing for things like new cars, holidays and household appliances would slow with the fall in house price growth, including some negative growth, between now and 2010. House prices were forecast to rise by just 4 per cent in total by 2010.
On top of mortgage borrowing, New Zealanders owe more than $4 billion on credit cards and have the dubious distinction of being the worse savers in the OECD. This profligate spending has helped keep the economy humming but has also led to New Zealand's official cash rate - the benchmark for mortgage lending rates - staying fixed at 7.25 per cent since last December and likely to stay up in the foreseeable future.
The chief executive of the Federation of Family Budgeting Services, Raewyn Fox, said consolidation of high interest debt could sometimes be good but people had to be careful about the affordability and risks of using equity in their homes.
"Paying the washing machine off over 20 years is not a good option compared to shopping around for an interest-free hire-purchase and paying it off after two years," she said.
Mary Holm, a personal finance writer for the Herald, has urged home owners to be wary of the wealthy feeling.
As she put it in one column: "What if house prices fall and you are quite deeply in debt?"
The director of Massey University's department of finance, banking and property, David Tripe, said a slowdown in house prices rises and household borrowing would not be good for retail stocks but he believed the number of New Zealanders with high mortgage debt was a relatively small 200,000.
