Rising interest rates: Mortgage holders facing financial crisis urged to ‘talk to banks and plan’

As interest rates rise, mortgage holders will find themselves spending much of their income paying off debt.
Photo: RNZ / Nate McKinnon

Banks are being asked to step up to help families and businesses in financial distress under pressure from rising interest rates.

The plea comes from the Reserve Bank with reports Issue overview Fighting inflation also includes the possibility of rising unemployment.

The Bankers Association said anyone with financial difficulties should make it a priority to contact their bank to discuss their options.

Its CEO Roger Beaumont said morning report The fact that New Zealand’s banks are in good financial shape will help the country weather the “inevitable” economic storm.

“Having a strong bank [that] Robust and [that] Those storms can be steered and the economy weathered. “

He said people facing a “significant change in circumstances” that would make it difficult to pay their mortgage, such as losing their job, should call their bank immediately.

“If you’re having financial difficulties, it’s best to talk to your bank and plan what you can do.”

He defended banks’ profit margins, saying that although banks operate in a highly competitive market, lenders understand their social responsibility to their customers.

“Banks need to be strong economic forces in any economy and in New Zealand banks are solid institutions.”

Beaumont said people who have to readjust their mortgages at higher interest rates will experience “significant changes” in their household spending.

However, he noted that banks include a serviceability margin when deciding whether to approve a loan.

‘Great Position’ – RBNZ Governor

Reserve Bank Governor Adrian Orr also said New Zealand is well-placed economically to face the types of challenges seen around the world.

He said morning report The bank has been very financially stable, which was a ‘very positive thing’.

He reiterated the need for banks to stay in touch with customers who may be struggling, and said, “It is in no one’s interest for banks to act in the short term.”

Rising interest rates and the current economic situation should not come as a surprise to anyone, he said, citing “an unbelievable situation with Covid” and ongoing geopolitical tensions.

Orr urged RNZ listeners: Read the semi-annual Financial Stability Report RBNZ released yesterday.

“Look at it and understand… This shouldn’t come as a surprise to anyone, nor to us about the situation New Zealand is in.

“In an absolute sense, yes, we have high inflation. In a relative sense, we are probably… one of the best economies in the world.”

“We are now swooping down the other side”

National Party finance spokesman Nicola Willis challenged the Reserve Bank governor’s claims that the country was in an “excellent” position, calling his statement “breathtaking”.

“We are indeed in a situation where thousands of New Zealanders are facing negative capital as their homes are worth less than they have borrowed and thousands of New Zealanders have lost their mortgages. I am worried if I will be able to repay the payment of morning report.

She said that so much money has been pumped into the economy that house prices have risen 30% in a year.

“We are now plummeting to the other side. This is not a great position for New Zealand.”

Willis questioned whether the economy could be called “strong and resilient” and said people were suffering from the worst cost of living crisis in decades.

“Prices are moving in line with wage growth. We are going to see a large group of New Zealanders spending most of their income on debt service.”

She said that in National’s view, drivers of inflation need to be addressed, including addressing labor shortages, curbing government spending and adjusting the tax system.

“Inflation is robbing people twice. First by making people pay higher fees every time they are in an Eftpos terminal, and second by pushing them into higher tax rates.”

But Chancellor Grant Robertson said solving the labor shortage in a constrained global labor market would not be easy, and giving tax breaks to wealthy New Zealanders was not the answer.

He said morning report With a global labor shortage due to the pandemic, a government reset of the immigration system would help, but “we have to fight hard to get people here.”

He acknowledged that the unemployment rate was likely to rise as economic conditions tightened, but said it had been predicted by most forecasters and had also been hinted at in the government’s budget forecast for May.

“You will never ask me to increase unemployment for New Zealanders. I am very proud of the fact that we have actually weathered Covid, not just with the 3.3% unemployment rate, but with adding people to the workforce. I am thinking.”

Robertson said National’s plan to cut taxes would only exacerbate the country’s inflation problem.

He said it was the Reserve Bank’s job to ensure price stability and the government’s job to help New Zealanders develop the skills they needed to stay in the workforce.

“There has to be a balance here … There are no costly decisions when it comes to managing the pandemic and its economic impact.”

Having trouble paying your mortgage?when to contact the bank

Those struggling financially because of rising mortgage rates or losing their jobs should not hesitate to contact their banks, said Roger Beaumont, chief executive of the banking association.

“Instead of waiting until your mortgage payment is late, you should contact your bank immediately.”

With options available, such as moving to interest-only payments or extending the term of a personal mortgage, the sooner people experiencing difficulties talk to their banks, the better.

“If you are struggling to cover these increased costs, you should consult your bank.”

He said the options banks can offer struggling customers are on a case-by-case basis.

“It depends on things like the amount of the loan, your employment status and ability to pay, and the operating costs of your own household.”

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