Home loan borrowers stand to save hundreds of dollars a month this year when their loans roll off higher fixed terms on to new, lower rates.
In the next six months, about half of all fixed-rate mortgages come up for repricing.
Westpac senior economist Satish Ranchhod said that for borrowers who last fixed a home loan up to two years ago, they could have a drop in interest rate of 100 basis points or more when they refixed.
It would only be people coming off a three-year or longer fix who rolled onto a higher rate.
Ranchhod said the drop in interest costs for affected households could be dramatic.
Someone with a mortgage equal to 50% of the median priced house in Auckland could have debt servicing costs fall more than $400 a month, he calculated.
In Wellington, the saving would be just over $350 and in Canterbury just under $300.
For the one-third of households with a mortgage, spending costs had risen to about 20% of their disposable incomes, compared to 16% pre-pandemic and a low of 10% in recent years, he said.
Household spending had fallen 1% in recent years as that crunch went on, and inflation pressure mounted.
He said it was hard to say whether people would now spend the money they saved when they refixed, or would need to use it to catch up from the impact of the cost-of-living squeeze of recent years.
“A lot of the squeeze in spending from the last couple of years was in essentials, higher costs for insurance, food and things like that. That crowded out spending in those more discretionary areas.
“I think it’ll be a little bit slow to recover because the labour market is soft right now but over the course of the year as people get more money in their pockets and the labour market starts to recover, I think you’ll see that spending start to come back gradually.”
Interest rates were likely to settle around “normal” levels rather than the very low rates of the pandemic period.
“Households at the lower end and first-home buyers tend to be spending more out of these changes and we have seen a big tick-up in first-home buyers in recent years.”
‘Reductions in rental pressure’ being reported
Living costs had climbed 1.7% in the six months to September.
For many lower-income families the increases had been larger, and rents had been a notable area of pressure.
“There have been some sizeable increases in rents over the last couple of years and mortgage costs were a big part of that. Now some of that pressure is coming off with mortgage rates coming down and we are hearing about reductions in rental pressure but there are still some increases going on around rates and things like that.”
He said it was something to keep an eye on.
“The pressure on incomes is likely to continue for some time yet. Recent business surveys have highlighted continued softness in economic activity, including weakness in hiring. Those conditions are likely to see unemployment rising to over 5%.”
Westpac expects house prices to rise about 8% this year and 5% next year.
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