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Let’s play a game – fact or fiction.
We’ll look at property-related news headlines to see how their statements stack up.
#1 – “Surging mortgage rates: Reserve Bank fears thousands of first-home buyers in trouble.” Newstalk ZB
What does the headline make you think?
Probably that the Reserve Bank thinks first home buyers have taken on too much debt and will need to sell up, causing house prices to fall.
Is the headline Fact or Fiction?
Fiction.
The Reserve Bank didn’t say that first home buyers were “in trouble.” Instead, they said that if interest rates rise to very high levels, some recent purchasers will face “serviceability stress.”
And that they’d need to “sharply reduce their living expenses” to continue paying their mortgage.
That makes sense. When interest rates fell, borrower's mortgage repayments decreased, so they spent more.
Now that interest rates are heading the other way, we all need to spend less.
So while some people will need to alter their spending decisions, it’s not true that there will be a rush of first home buyers selling up, as the headline suggests.
#2: “'Day of reckoning' coming for borrowers of $160 billion in housing loans after Reserve Bank hikes OCR.” NZ Herald
The headline suggests that $160 billion of loans will come under stress as borrowers fix their loans at higher interest rates.
Is it Fact or Fiction?
Fiction
Most of that $160 billion will not come under stress.
That’s because while some borrowers have taken on a lot of debt, the average mortgage is smaller than many Kiwis think.
While the average price of a New Zealand property may be just over $1.025 million (CoreLogic), the average mortgage is just over $362,000.