[throwaway788]

The banks are required to stress test those loans with somewhat stringent requirements. When the loans were granted they take the current retail interest and add around 3% and ensure that the loan recipient could still afford it. Last year there were stories in the NZ media around how banks were not writing loans because people were spending too much on Uber Eats etc. They were going over finances with a fine-toothed comb (there was a bit of backlash in the media, but turns out it was a good thing). NZ banks have quite a high capital reserve buffer requirement which was increased by the Reserve Bank of New Zealand a few years ago – with a lot of pushback from the banks at the time.

[vosper]

This is correct, and also wages are rising faster than inflation. Very very few households with mortgages are actually at risk of defaulting (so low the number is essentially zero), and both banks and households can sustain higher interest rates than we're seeing.

Much more info (with numbers and charts) in Bernard Hickey's post from a few days ago.

https://thekaka.substack.com/p/incomes-are-rising-faster-tha...

[Atsuii]

I know from family in NZ that the stress test banks apply is very similar to stress test we apply in Australia. As of the latest rate rise, rates are now above what banks were required to stress test for at the lowest rate loaned in 2021. I imagine New Zealand is reaching that number as well. For 90% of households this won’t matter as they purchased pre 2020/2021 so they were means test for higher rates but for households who took loans on during Covid they could theoretically really struggle when their fixed rates are up.