Low rates 'hiding mortgage stress'
Home loan borrowers may start to fall behind on their mortgages when interest rates start to rise, a banking expert warns.
Thursday, February 28th 2013, 6:00AM 
10 Comments
by Niko Kloeten
KPMG partner John Kensington, editor of the accounting firm’s Financial Institutions Performance Survey (FIPS), said that despite falling over the past couple of years, impaired and past due assets were still well above pre-global financial crisis levels.
But he said low interest rates meant banks were managing to prevent these troubles spilling over into a flood of mortgagee sales, which currently account for only 0.2% of houses being sold.
Kensington said banks were managing their struggling assets well and low rates allowed them more flexibility when dealing with clients.
“What some banks are doing at the moment is that if someone can’t make all their payment, provided they can pay the interest component, they’re prepared to let them make part payment on the principal.”
But when interest rates started to rise, these sorts of arrangements would be put under pressure, he said.
“If you make people pay interest at 8% there are going to be even more people past due. If the rates go higher payment will be higher and there will be a larger interest rate component.”
Kensington said the issue of low interest rates went beyond those who were behind on their mortgage payments.
“Banks are writing lots of loans at 4.9% with 100% loan-to-value ratio; what will happen when the OCR and inflation pushes borrowing costs up to 7-8%? That’s one of the questions being asked.”
Niko Kloeten can be contacted at niko@goodreturns.co.nz
| « HSBC offers home loans at 4.99% | Merger complete » |
Special Offers
Comments from our readers
Those "select customers" will have strong equity across other assets and be a significant client to bargain that low. Their total LVR will probably be better than 75% over half a dozen or more rentals with strong cashflows to boot.
In 2009 mortgage stress and rising mortgagee sales had a lot more to do with unemployment figures and rising food and energy costs than rates, and next time round it will be the same.
In two years time rising interest costs will only be a part of the picture.
The true 100% loan by definition is where the borrower has NO equity/deposit to contribute whatsoever towards a purchase. As others have already commented above NONE of the banks are writing these types of loans at present to anyone.
With respect I think John Kensington needs a banker/mortgage broker to educate him what 100% lending actually is as his comments above are misleading to prospective borrowers and your readers.
Just above the article is a link to an article that starts:
"New Zealand is still at significant risk of a sharp correction in property prices, according to Standard and Poors."
No doubt as they have "loads of qualifications/titles after their names, only look at numbers and sit in the office", they will not be worth listening to either!
Sign In to add your comment
|
|
Printable version |
|
Email to a friend |
