Banks are urged to step up and support families and businesses facing financial hardship as pressure comes from rising interest rates.
The call comes from the Reserve Bank in a report outlining challenges in fighting inflation, which also includes the potential for higher unemployment.
The Bankers Association said anyone experiencing financial difficulty should make it a priority to contact their bank to discuss their options.
Its managing director, Roger Beaumont, said morning report the fact that New Zealand’s banks were in good financial health would help the country weather the economic storms that were “inevitably coming”.
“Having strong banks [that] are robust, [that] can steer into these storms, will allow the economy to pull through.”
People facing a “significant change in circumstances” that would cause them difficulty paying their mortgage – such as losing their job – should call their bank immediately, he said.
“If you’re having financial difficulty, it’s best that you talk to your bank and come up with a plan for what you can do.”
He defended banks’ profit margins saying they operated in a competitive market but lenders understood their social responsibilities to customers.
“Banks must be strong economic forces in any economy and banks are strong institutions in New Zealand.”
Beaumont said people needing to service their mortgages at higher rates would experience “a significant change” in terms of their household spending.
However, he noted that service margins were included when banks were determining whether loans should be approved, meaning most customers would need to have some buffer to absorb the increased costs. .
“A wonderful position to be in” – RBNZ Governor
Reserve Bank Governor Adrian Orr also said New Zealand was in good economic shape to deal with the kinds of challenges faced around the world.
He said morning report the banks were very financially stable, which was “a strongly positive thing”.
He reiterated the need for banks to keep in touch with customers who might be in trouble, saying it was “in no one’s interest for banks to act in the short term”.
Rising interest rates and the current economic situation should surprise no one, he said, citing the “incredible Covid situation” and ongoing geopolitical tensions.
Orr urged RNZ auditors to read the semi-annual financial stability report that RBNZ released yesterday.
“Look at this, understand that… none of this should come as a surprise to anyone, and none of this comes as a surprise to us about the situation New Zealand finds itself in.
“In an absolute sense, yes, we have high inflation, in a relative sense, we are probably…one of the best-positioned economies in the world.”
“We are now descending steeply to the other side”
National Party finance spokeswoman Nicola Willis said she disputed the Reserve Bank governor’s assertion that the country was in a “wonderful” position, calling his statement “breathtaking”.
“We are actually in a position where thousands of New Zealanders now find themselves with negative net worth, their homes worth less than they borrowed, thousands of New Zealanders worried about whether they will be able to make with their mortgage payments,” she said. Told morning report.
She said house prices had risen 30% in a single year because so much money had been pumped into the economy.
“We’re going down the other side now; it’s not a wonderful position for New Zealand.”
Willis questioned whether the economy could be called “strong and resilient”, saying people were grappling with one of the worst cost of living crises in decades.
“Prices have revolved around wage growth – we’re now going to have a large group of New Zealanders who are spending a huge amount of their income on servicing debt.”
She said the drivers of inflation needed to be tackled, which National said included addressing labor shortages, containing government spending and adjusting tax brackets.
“Inflation robs people twice: once by charging higher prices every time they are at the Eftpos terminal, then the second time by pushing them into higher tax brackets.
But Finance Minister Grant Robertson said tackling labor shortages was not easy in a tight global labor market and giving tax cuts to wealthy New Zealanders was not. more the solution.
He said morning report there was a global labor shortage as a result of the pandemic and while the government’s immigration reset would help, “we have to fight hard to get these people to come here.”
He acknowledged unemployment was likely to rise as the economic situation toughened, but said that had been predicted by most forecasters and was also flagged in the government’s budget forecast in May.
“You’re never going to make me look for more unemployed New Zealanders, I’m extremely proud of the fact that in fact we got through Covid with, not just unemployment at 3.3%, but adding people to Workforce.”
Robertson said National’s plan to cut taxes would only exacerbate the country’s inflationary problems.
He said it was the Reserve Bank’s job to provide price stability and the government’s job to ensure New Zealanders were supported to develop the skills needed to help them stay in work.
“There is a balance to be found here…there are no free decisions when it comes to managing a pandemic and its economic impacts.”
Having trouble paying your mortgage? When to contact your bank
Those who were experiencing financial hardship due to rising mortgage interest rates or because they had lost their jobs should not delay contacting their bank, said Bankers Association chief executive Roger Beaumont.
“You should contact your bank immediately, rather than waiting until you have missed mortgage payments.”
There were options available, such as switching to interest-only payments or extending the term of a person’s mortgage, he said, and earlier those who were struggling were talking to their bank, the better.
“If you’re having trouble dealing with these increased costs, you should talk to your bank.”
He said the options banks could offer struggling customers would be on a case-by-case basis.
“It will depend on the size of your loan, your employment status and your ability to pay, as well as your household operating expenses and things like that.”