High salaries no buffer to rate worries

Media Release

High salaries no buffer to rate worries

Wednesday 18 May 2005 A recent survey commissioned by Wizard Home Loans has shown high levels of anxiety over spiraling interest rates. With many people on fixed-rate loans yet to feel the pinch, Kiwi homeowners are becoming apprehensive about how they will manage once their current fixed terms expire.

According to the survey the level of concern reaches its peak with one in three people earning up to $79,000, saying they were worried about paying off the mortgage when their current fixed rate expires.

“We expected those with household incomes under the average $39,364 would struggle to keep up with repayments if rates go up and in fact, 33 percent of them are worried. But for levels of concern to remain much the same in the $40,000 - $79,000 income bracket does indicate that most households are on very tight budgets,” said John Grant, Head of Wizard New Zealand.

One quarter of those polled were worried about the predicted rate increases and how they would meet their commitments if they have to face higher interest payments once they move off their current fixed-interest arrangements.

“Some families could be facing thousands of dollars more per year in repayments if rates go up,” said Grant.

For example, a person who borrowed $200,000 in June 2003 and fixed the loan for two years at around 6.25 per cent could now be faced with rates of 7.73 per cent, or higher, if rates rise as predicted. This means increases in monthly repayments from $1,319 to $1,544 – or an additional $2,700 each year.

“If you are on an average income with a family, that’s a lot to find,” said Grant

“If tomorrow’s budget changes the level at which the higher tax rate kicks in, that could benefit families on $60,000 or over, but it’s not going to help those with lower household incomes if interest rates do rise,“ John Grant said.

The survey also revealed that of families with children, 26 per cent were concerned, while nearly half of the single-parent families polled said they were concerned about meeting their repayments in the event of rate hikes.

The majority of people interviewed live in the Auckland region. Of these 26 per cent are concerned about meeting mortgage repayments once they come off their fixed-term loan. A similar level of concern was demonstrated in Wellington and Christchurch, at nearly 24 percent.

The telephone survey was conducted by Marketing and Diagnostics LTD between April and May 2005 on behalf of Wizard Home Loans and reached a sample of 350 current and potential homeowners in Auckland, Wellington and Christchurch. It has a margin of error of plus or minus five percent.

Wizard now has 33 branches across New Zealand with at least another 22 planned by June 2006. Wizard expects to continue its growth throughout Australia and New Zealand, making it the dominant non-bank distribution model.

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