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High inflation adds to advisers' challenges

The return of the inflationary bogeyman after a 30-year hibernation is loading more worries onto brokers already burdoned with full licencing requirements and a not-yet remedied CCCFA.

Monday, April 25th 2022, 6:37AM

by Eric Frykberg

The new problems include rapidly changing interest rates, affordability challenges for would-be borrowers and harsher stress testing by banks.

The trouble is that when inflation goes up, the Reserve Bank pushes up the Official Cash Rate and banks in turn pass their higher costs on to customers.

So this week's 6.9% increase in the Consumers Price Index will eventually rebound on the would-be home owner waiting in a adviser's lobby.

Bruce Patten of Loan Market has been seeing that first hand.

“It has made our lives harder in the last month because interest rates are moving every couple of days, it seems,” Patten said.

“It was only a few weeks ago that economists were predicting rates would settle somewhere between 4% and 5%, now they are talking 6% or 7%. That is where it gets very difficult because you can't predict how it will turn out.”

A fellow Auckland adviser, John Bolton, says the pace of change in the sector compels brokers to work as fast as they can to secure good deals for their customers before they expire.

And he says his customers are also more nervous about buying a property at a time of rapidly changing interest rates, since they fear their earlier calculations of affordability might soon no longer apply.

“CCCFA plus higher rates mean that buying power is reduced. Volumes are definitely down, house sales are down 20 %,” Bolton said.
There was also an impact on the serviceability level, according to Bolton.

The serviceability level is an extra margin required by banks in addition to the actual interest rate of an actual mortgage.  It is a theoretical requirement that banks use to protect themselves against borrowers who can afford a loan now but might default during a time of rising interest costs.

“The stress rates that banks are using now are getting closer to 7% - they are stress testing stuff at about 6.85% - that would be the standard rate.”

But Bolton says the fall in house prices has been able to offset this. He says prices for houses that actually sell are down 10% to 15% - which is a sharper fall than official statistics would suggest.

“So there is less buying power but prices are down so people can still buy.”

In releasing the latest high inflation figures, Stats NZ placed some of the blame on the fas- rising cost of building a new home. Bolton is also very concerned about this, and so is a broker from Tauranga, Rupert Gough.

“The big problem is construction costs. They have been a real nightmare for us, because anyone wanting to build a house has no idea what it is going to cost them because the builders have no idea what it is going to cost them.

“We have seen time and time again that builders are not willing to put a cost on the contract, because it may go up by another 30%. You have to write that increase into a contract and the banks don't like that – they want to know exactly what it is going to cost.

“That is probably our biggest thing at the moment.”

« High inflation likely to lead to another 50bp OCR hikeNo new taxes but a big tax enquiry – Revenue Minister »

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 5.35 4.49 5.25 5.55
ANZ 5.54 5.15 5.85 6.15
ANZ Blueprint to Build 2.78 - - -
ANZ Special - 4.55 5.25 5.55
ASB Bank 5.35 4.49 5.25 5.55
Avanti Finance 5.45 - - -
Basecorp Finance 6.45 - - -
Bluestone 5.29 7.49 7.59 -
BNZ - Classic - 4.55 5.25 5.45
BNZ - Mortgage One 5.55 - - -
BNZ - Rapid Repay 5.55 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 5.55 5.35 5.94 5.99
BNZ - TotalMoney 5.55 - - -
CFML Loans 6.45 - - -
China Construction Bank 5.50 5.40 6.14 6.40
China Construction Bank Special - 4.45 5.19 5.45
Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 4.70 5.20 -
Heartland Bank - Online 4.00 3.85 4.70 4.84
Heretaunga Building Society 5.95 4.80 5.50 -
HSBC Premier 5.49 4.39 5.15 5.39
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.25 4.29 5.09 5.35
Kainga Ora 5.43 4.57 5.58 5.85
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 5.00 5.55 6.19 6.39
Kiwibank - Offset 5.00 - - -
Kiwibank Special 5.00 4.55 5.19 5.39
Liberty 4.84 - - -
Nelson Building Society 5.95 4.95 5.85 -
Pepper Essential 3.44 - - -
Resimac 4.59 5.60 6.16 6.29
Lender Flt 1yr 2yr 3yr
SBS Bank 5.29 4.69 5.35 5.49
SBS Bank Special - 4.19 4.85 4.99
Select Home Loans 4.09 4.29 4.86 5.09
The Co-operative Bank - First Home Special - 4.19 - -
The Co-operative Bank - Owner Occ 5.45 4.29 5.19 5.45
The Co-operative Bank - Standard 5.45 4.79 5.69 5.95
TSB Bank 5.59 5.14 ▼5.79 6.15
TSB Special 4.79 4.34 ▼4.99 5.35
Unity 5.65 4.80 5.50 -
Wairarapa Building Society 5.24 4.55 5.20 -
Westpac 5.54 5.09 5.79 6.09
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.54 - - -
Westpac Special - 4.49 5.19 5.49
Median 5.45 4.55 5.25 5.52

Last updated: 19 May 2022 10:42am

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