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Mortgage stress. How much do I need to earn to avoid it?

Have you ever heard of mortgage stress or maybe you have felt mortgage stress before, lingering at the back of your mind and affecting every financial decision you make. Unfortunately, more and more Kiwis are finding themselves in the tight grip of mortgage stress, where a hefty third of their pre-tax household income is devoured by mortgage repayments. Ouch!

women looking stressed with the head in her hands

In the wild world of interest rates, the numbers have been riding some serious roller coasters for a while. Just last January, the average two-year fixed rate was sitting at a very reasonable 4.38%. Flash forward to this year, and it's hanging around at a hefty 7.12%. Which means if you're about to hop off a fixed-rate term, be prepared for an increase in repayments.

illustration of an upward trending graph

Now, let's talk numbers. If we take the average NZ mortgage, around $369k, and apply that 7.12% rate, you're facing monthly repayments of $2636. If we compare that to when interest rates were at a more manageable ~4%, that is an increase in monthly repayments of $610. With such a hike in repayments, it is no wonder so much of the country is feeling the pressure of mortgage stress.

Are you looking for a mortgage or looking at refixing? Why not use our Mortgage Calculator to see what you can afford to borrow based off different interest rates. If you need more help, you can always contact the team for more help or information.

So how do you know if you're at risk of mortgage stress? With incomes and house prices varying from region to region, the occurrence of mortgage stress really does vary from household to household. In Auckland, where the real estate scene resembles a high-stakes poker game, annual earnings of $240,279 will be required to comfortably juggle a median-priced house and its mortgage. That's a cool $90,000 more than what the average Auckland household brings home. It is important to remember that these figures are based of medians and averages, where as in real life, we see figures on more of a spectrum. But it allows us to quantify why people are struggling right now.

Moving on to other pricey regions like Tasman and Bay of Plenty, and the story remains much the same. Across the board, the average household is left dangling on a rope, short of around $50,000 annually to snag that median-priced home. Only a lucky trio – Gisborne, Southland, and West Coast – have a household income large enough to cover repayments without tipping into mortgage stress.

So how can we tell if we are suffering from mortgage stress? Think living paycheck to paycheck, wrestling with bills and mortgage payments, or resorting to credit cards for everyday expenses. Sound familiar? If so, you might be in the club.

For those who find themselves unwilling members of the mortgage stress club, there are things that you can do to help alleviate you situation. Consider reaching out to a free financial counselling service. They can dissect your bills and spending habits to help craft a budget which you can afford. And why not tap into the wisdom of mortgage brokers to see if you can restructure your mortgage and repayments for a more affordable approach?

Here at Naked Finance, we offer free advice so don't suffer under the burden of mortgage stress, reach out to the team for some personalised advice. 


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