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Govt advised about impact of higher rates

NZ Newswire logoNZ Newswire 7/05/2017

The government has been advised that Aucklanders may have to spend as much as 70 per cent of their income servicing home mortgages when interest rates rise, the Green Party says.

Interest rates have been very low in New Zealand for several years and it is one factor that has fed a housing boom in Auckland and more recently elsewhere.

The Greens say that could be a problem, particularly for recent first home buyers, when interest rates rise.

The Greens have obtained an email from Reserve Bank analysts to senior Beehive staff in January 2017 under the Official Information Act which highlights a "significant likelihood of financial distress" for people who have recently got mortgages in Auckland.

The Reserve Bank told the government an Auckland family earning $100,000 a year is potentially going to have to spend 60 to 70 per cent of their income servicing the mortgage on their first home in the next year or two.

"People took on huge risks because they felt they had to buy now, because houses were only going to get more expensive under National. Now that interest rates are rising things are going to be tough for many families with mortgages," says Greens co-leader Metiria Turei.

"The Reserve Bank is saying families could be forced to 'materially reduce consumption spending from normal levels', which means cutting down on basics like food and paying the bills, or even sell their homes."

She says the housing crisis is now affecting people from all walks of life up and down the country.

"If people have to spend 60 to 70 per cent of their income servicing their mortgage, where is that money coming from? Turning the heater off this winter? Fewer school trips?

"The solution to the housing crisis is for the government to build thousands of affordable homes, put in place a rent-to-buy programme, crack down on speculators with a capital gains tax (excluding the family home), and restrict overseas investors," Mrs Turei said.

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