The ASB says the overall household debt servicing costs have yet to peak.

In an economic note, it anticipates the average debt servicing cost facing households will peak at about 6.2 per cent in the middle of this year, 340bps above 2021 lows. Compared with 2021 lows, this will add a bit more than an extra $100 per week of costs for each household – an extra $12 billion per year on nationwide household debt servicing.

About 90 per cent of this tightening has been experienced so far, says ASB senior economist Mark Smith.

Household debt is sizeable. RBNZ figures place the stock of household debt in the region of $368 billion, or about 165 per cent of household disposable incomes, and slightly more than 90 per cent of nominal GDP. This equates to about $185,000 for each private dwelling. More than 95 per cent of this is mortgage debt.

Household debt-to-income is now easing as the 3 per cent annual growth in household borrowing has fallen below the growth in household incomes. However, debt servicing has ratcheted up as borrowing costs have increased.

Interest Rates

Mortgage interest rates for new borrowers are expected to steadily decline this year and into 2025. Despite this, new mortgage interest rates are unlikely to decline as swiftly or as substantively as they have risen given that deposit rates, a sizeable chunk of mortgage funding, have yet to drop.

Smith says the bank’s estimates suggest about 20 per cent of mortgage debt is either variable or rolls off each month, with about 60 per cent having to be refinanced within six months, 80 per cent within a year and more than 95 per cent within two years.

“Our forecasts suggest the average interest rate on mortgage borrowing should peak at about 6.2 per cent by the middle of this year, a shade lower than the RBNZ’s November MPS forecasts of 6.4 per cent,” he says.

This is about a 340 basis points climb since the September 2021 lows.