Mom says time with her baby will be cut short as monthly house payments are set to soar by $800 a month

Auckland mum Trish Heard had been hoping to take a year off to spend time with her 7-week-old daughter Stella, but with the family’s home loan payments set to jump by $800 a month from July, she says she has to go back to work sooner.

The family is also limited in their ability to seek a competitive rate, with their mortgage adviser telling them that because they are self-employed and will be on maternity leave when it comes time to renew, only their existing bank will look into it. his request.

“The fact that they (the banks) don’t even consider us as a family, with our income and our credit rating, it kind of appalled me,” she says.

Heard now plans to return to part-time work within seven months and return to full-time work within a year. She is disappointed that she cannot spend time with Stella and her 3-year-old daughter, Harriet.

Trish Heard had planned to take a year off and hoped to become a full-time mum, but now plans to return to work in about seven months.

LAWRENCE SMITH / Stuff

Trish Heard had planned to take a year off and hoped to become a full-time mum, but now plans to return to work in about seven months.

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“It was important for me to have this time to bond with Stella and find my feet with two kids,” Heard said.

“And to give me time to rest to get back to work, and not rush that precious time. And that’s precious in the first two years.”

The Heards are part of a growing cohort of recent buyers facing rising interest rates and rising costs of living, and whose life decisions are likely to be dictated by their mortgages.

The family can lock in a new home loan rate 60 days before its current one-year fixed term expires and intend to do so as soon as possible, but they still expect a jump to 2.25 % to about 5.5%.

Chris McKeen / Stuff

Valocity Head of Valuations James Wilson provides his assessment of the housing market.

“We calculated the interest per year, and our interest goes from $21,000 to $31,000,” Heard says.

Heard says that even when she returns to work, she expects the family to pay interest only for at least a year.

Heard has produced and directed for television, and says that in the 14 years she has been independent, she has never been out of work. But says banks still consider it high risk.

The Heard family is in a better position than many recent first-time home buyers.

They bought their first home, a three-bedroom in Te Atatū South, in mid-2019 for $705,000, a price Heard said seemed high at the time, but a bargain by today’s standards. today.

At the time, the family had a two-year fixed mortgage rate of 4.35%, which Heard says prepared them well for the current environment.

The family was paying more than their monthly needs while rates were low, which Heard says will provide a buffer when their repayments change.

Trish Heard with her seven-week-old daughter Stella.

LAWRENCE SMITH / Stuff

Trish Heard with her seven-week-old daughter Stella.

Recent first-time home buyers face a double whammy

First-time home buyers who bought more recently than the Heards face a double whammy of buying at the peak of the market, and when interest rates were at historic lows.

Data from CoreLogic shows house prices rose 11% in 2020 and 28% in 2021, equivalent to a 41% increase over the two years. So far this year, prices are estimated to have fallen by around 4%.

About 60% of home loans will need to be refinanced next year, according to CoreLogic.

The real estate data firm’s chief real estate economist, Kelvin Davidson, said for many borrowers their interest rates would double on renewal.

The reserve bank latest financial stability report suggests that recent borrowers are the most exposed to rising interest rates and falling house prices, and a deeper housing market correction remains a possibility.

CoreLogic's chief economist, Kelvin Davidson, doesn't expect an increase in forced home sales.

Provided

CoreLogic’s chief economist, Kelvin Davidson, doesn’t expect an increase in forced home sales.

“New borrowers will generally be more vulnerable than previous borrowers because they have repaid less principal, experienced lower capital gains and, in recent years, their serviceability has been priced at lower interest rates.” , says the report.

A recent Reserve Bank analysis found that if mortgage rates rose to 5%, nearly 20% of recent first-time homebuyers would face mortgage issues.

At 6%, this would increase to nearly 50%, and investors and some existing owner-occupiers would also be under pressure.

16,000 recent buyers likely to experience mortgage stress

CoreLogic keeps track of how many people fall into the mortgage stress category.

Working on the Reserve Bank’s findings, Davidson says if interest rates hit 6%, between 10,000 and 11,500 first-time home buyers who bought in 2021 will face stress.

Davidson expects only about a quarter of first-time home buyers who bought in 2020 will be in the same boat, as they bought when prices were lower and interest rates higher. However, that still added about 6,000 distressed buyers if interest rates hit 6%.

“It’s also important to point out that they wouldn’t all default because they would change their spending to pay off the mortgage,” Davidson says.

“And even if it was a mortgage sale risk, I think recent history shows that the banks would try to work with them first before forcing a sale anyway.”

ANZ economists also recently forecast that servicing a mortgage will become more difficult for most households this year, but it is highly indebted recent first-time home buyers who will feel the pinch the most.

“I’m not trying to minimize the risks here at all. I completely agree that there are vulnerabilities, for example, larger mortgages, higher interest rates, etc. says Davidson.

“But as long as unemployment can stay low, I just feel like major problems aren’t on the horizon yet.”

Trish Heard has to return to work due to the rising cost of mortgage repayments with rising interest rates.

LAWRENCE SMITH / Stuff

Trish Heard has to return to work due to the rising cost of mortgage repayments with rising interest rates.

Lock for security

Heard says the family will fix half of their mortgage at a one-year rate and the other half at three years, to add some security at a time when interest rates are expected to rise.

The family is not alone in this decision. ASB recently reported that concerns about rising interest rates had fueled an increase in the number of mortgage borrowers opting for longer-term fixed rates, with a fifth of customers now having at least part of their mortgage at three- to five-year rates – twice the rate the year before.

Heard says she wants the government to do more to help those who may be facing mortgage stress.

“I don’t know what the solution is,” she said. “Maybe they need to be bolder in the future with their policies on who can invest and buy here.”

Financial adviser Glen McLeod said interest rates could rise further, so anyone in a position to make repairs should do so as soon as possible.

Provided

Financial adviser Glen McLeod said interest rates could rise further, so anyone in a position to make repairs should do so as soon as possible.

Advice to owners

Edge Mortgages financial adviser Glen McLeod says he has been advising clients for months to reset rates as soon as possible if their fixed term is expiring soon.

“Because if you don’t, you’re going to end up with higher rates, and that’s what happened,” he said.

“Now my concern is will we see another jump? There’s a potential for that because the Reserve Bank has to get that headline inflation rate under control – it has to.

He says borrowers should seek professional advice because locking in a lower interest rate on a shorter fixed term may not help them in the long run.

Indeed, short-term rate increases are likely to be high, and when they next renew, they could hit the top of the market and end up with an even higher rate.

He says each customer needed to be treated on a case-by-case basis, with the length of their low-interest term versus where interest rates are likely to sit at renewal.

The possibility of rate increases was signaled on Monday by ASB and ANZ raising the interest rate they charge stress test applicants from 6.85% to 7.35% and from 6.7% to 7.15 % respectively.

McLeod says most lenders have allowed borrowers to lock in new fixed-term rates up to 60 days before their current rate expires.

Many borrowers don’t realize that if they want to break from their current lower rate and re-fix it at a higher rate, there is unlikely to be a break fee from the bank.

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