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Falling interest rates won’t ease mortgage stress anytime soon – expert

Interest rates news

New Zealand is seeing a rise in mortgage stress despite falling interest rates, with non-performing loans reaching their highest level in a decade, according to property economist Kelvin Davidson from Corelogic.

While the current rate of 0.6% of overdue or impaired loans is still half of what it was during the 2009-2010 financial crisis, Davidson told state media that the number could increase due to rising unemployment.

Banks are already raising provisions for potential bad housing loans, now 40% higher than the peak of the COVID-19 era. Although the situation is not yet extreme, Davidson warned that mortgage stress would continue to be a challenge, tempering any optimism about a rebound in the housing market.

Davidson also noted that the rapid fall in interest rates, driven by the Reserve Bank’s OCR cuts, has prompted many borrowers to opt for short-term fixed-rate loans. The percentage of borrowers choosing terms of six months or less has surged, with 68% of new loans in August fixed for under a year. While this could allow borrowers to benefit from continued rate cuts, there is uncertainty around how much further rates could drop.

Borrowers face complex decisions about loan terms, with some spreading their loans across different periods to manage risk and take advantage of potential future rate decreases.

Image credit: Getty Images

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