In 2017, the Reserve Bank calculated that if rates ballooned to nine per cent, seven per cent of borrowers and a significant 19 per cent of recent borrowers would suffer severe stress, more so in Auckland.
The Bank’s stress test, part of its regular financial stability report, looked at borrowers’ ability to service interest rate of seven per cent and nine per cent, calculated against minimum essential living expenses and the reliability of income sources.
New Zealand household’s high debt levels compared to the rest of the world (93 per cent of GDP, second only to Australia’s frightening 121 per cent, according to rating agency Fitch) means our financial system is vulnerable to financial downturns. Householders could well do the same to test their own vulnerability to changes.
“Repayment affordability is more important than ever now that rapid house inflation is behind us,” says Valocity’s head of valuation, James Wilson. “It is more important than ever to consider both the immediate and long term repayment affordability. Don’t just ask yourself, can I afford the repayments now, run your numbers on current and potential future scenarios.
“Property ownership should be a long-term game.”
Right now the rates hike scenarios are hypothetical, and interest rates are at a historical low – but the Reserve Bank has indicated that interest rates could rise in the future, and interest rates of 10 per cent are not unusual in New Zealand.
Full Article : https://www.newstalkzb.co.nz/news/business/interest-rate-doomsday-how-much-extra-will-you-pay/
4th March 2019 – NZ Herald