Thousands of heavily-mortgaged first home buyers in Auckland could be hit hard by rising interest rates, thanks to out of control house prices, according to documents released to the Green Party under the Official Information Act.
An email from Reserve Bank analysts to senior Beehive staff in January 2017, titled “response to PM’s questions”, highlights a “significant likelihood of financial distress” for people who have recently got mortgages in Auckland, in the event interest rates rise as predicted.
“The Prime Minister is clearly worried and the Reserve Bank is clearly worried. This is what happens when the Government allows the housing market to spiral out of control,” Green Party Co-leader Metiria Turei said.
“People took on huge risks because they felt they had to buy now, because houses were only going to get more expensive under National. Now that interest rates are rising things are going to be tough for many families with mortgages.
“The Reserve Bank is saying families could be forced to ‘materially reduce consumption spending from normal levels’, which means cutting down on basics like food and paying the bills, or even sell their homes.
“Whether someone earns the minimum wage or a six figure salary, the housing crisis is now affecting people from all walks of life up and down the country.
“The Reserve Bank told the Government that an Auckland family earning $100,000 a year is potentially going to have to spend 60 to 70 percent of their income servicing the mortgage on their first home in the next year or two.
“If people have to spend 60 to 70 percent of their income servicing their mortgage, where is that money coming from? Turning the heater off this winter? Fewer school trips?
“The solution to the housing crisis is for the Government to build thousands of affordable homes, put in place a rent-to-buy programme, crack down on speculators with a capital gains tax (excluding the family home), and restrict overseas investors,” Mrs Turei said.