The year was 2021. Fixed mortgage rates dropped below 3 per cent, and people looking to enter the housing market jumped with glee as their dream brushed their fingertips. It was a curse disguised as a blessing.
Buyers had more money than ever to play with, and as many fought to outbid each other to secure a spot in the market, house prices inflated beyond reach.
Existing homeowners seized their chance to sell the home they paid $250,000 for in 2016 for $600,000-plus, just to buy another better house in the same market, with the help of some extra easy money from the bank.
Others took out loans totalling hundreds of thousands of dollars to buy investment property [again with money they didn’t really have], and renters serviced their low-interest cheap mortgages.
Then along came 2022.
Inflation, a covid hangover, international conflict … oh, and it’s time to refix your mortgage at more than 6 per cent.
That $500,000 borrowed at a historically low interest rate is now costing homeowners $690 a week instead of $485.
And that family that started renting a house in 2021 now needs to pay $760 a week to service the mortgage and council rates instead of $555.
It’s now crunch time for Wairarapa, with housing affordability officially the worst since Infometrics began its data series in 2005.
Masterton people were paying 42.1 per cent of their income to their mortgage in 2022.
The last time it was this high was in 2008 when New Zealanders were dealing with the recession sparked by the Global Financial Crisis.
In this period, the average floating residential interest rate in New Zealand peaked at 10.72 per cent, and Masterton people were paying 39.9 per cent of their income to their mortgage.
The floating interest rate currently sits at 7.99 per cent with ANZ, whose economists say inflation is “not yet in the bag” and that borrowers need to be “aware of the risk of higher rates”.
The warning is too little, too late.
The time to be aware of the risk of higher rates was when they were historically low. It’s like warning someone about a rising tide when they’re already in the water wearing a ball and chain.
On the bright side, ANZ also states slowing credit growth may leave banks in less of a hurry to raise mortgage rates, and that we “are nearer to the end than the beginning of the interest tightening cycle”.
Either way, mortgage repayments are taking much more of the pie, and council rates rises, though viewed as inevitable, will further stress homeowners’ pockets and inevitably trickle down to renters.
Masterton District Council has indicated an average rates rise of 7.9 per cent this year, subject to consultation, and Carterton has signalled a rise of between 4 per cent and 7.2 per cent on average.
South Wairarapa is yet to indicate its planned average rates rise.
As we all know, the rises could be worse, but soon it will be our chance to say whether they could be better.
What are the nice-to-haves, and what are the need-to-haves?
What projects can wait, and what needs to be done under urgency?