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NZers' debt rises past pre-crisis level

NZ NewswireNZ Newswire 20/04/2016

Kiwis have returned to racking up the debt and a rise in interest rates could leave some in trouble, a report has found.

The study from Westpac found New Zealand's personal debt levels have risen to higher than before the global financial crisis thanks to low interest rates.

Total household debt is now at about 162 per cent of disposable income, up 22 per cent since 2012, and higher than the 159 per cent peak in 2009, according to Westpac senior economist Satish Ranchhod.

"[That's] completely reversed the reduction in debt levels seen in preceding years," he said.

While the spending had boosted consumption in the economy, it also made it vulnerable to rising interest rates, Mr Ranchhod said.

"If interest rates increase, many borrowers will find their debt servicing requirements ratcheting up, and for highly indebted borrowers such increases could be marked. In some cases, debt could even become unserviceable," the report said.

Mr Ranchhod said while New Zealand's debt-to-asset ratio had fallen to their lowest level since 2007 - that's how much people owe compared to what they own - a rise in interest rates would make houses less attractive and hit that figure as well.

"This would put downward pressure on prices, and could see debt-to-asset positions deteriorating, just as they did during the financial crisis."

But Mr Ranchhod said, for the time being, debt levels looked serviceable and could even get easier to manage.

"It's likely that debt servicing costs will drop further over the next few months as recent interest rate reductions pass through to the rates faced by households," he said.

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