mattwnz:

 

My major concern, and perhaps a concern for many home owners with a large mortgage, is what happens if interest rates double. It probably won't happen overnight, but in 5 years time it potentially could be double what it is today. That is when people potentially could get into negative equity if house prices drop, and the house is worth less than the mortgage. That is when banks get worried. 

 

If I recall correctly the average floating rate was about 8% in 2004, peaking at 11% in 2007, then it all came crashing down after the GFC.

For my own financial planning - which I try to be very conservative with - I have assumed that interest rates will rise at one percentage point per year from late 2019 to late 2022. Guidance from the Reserve Bank and analysts suggests that interest rates will not increase materially between now and late 2019. That would take the floating rate out to about 8.8% in late 2022 as a reasonable worst case scenario.

It is widely believed that rates in this economic cycle will not peak anywhere near the peak of the last cycle. Inflation is stubbornly low around the world, including in NZ despite the inflationary pressure that you would expect to arise from rising rents, industrial unrest, oil prices, etc. This suggests a structural change in the global economy that will see a sustained period of low interest rates.

However eventually rates will rise somewhat and any property owners who have very tight cashflow now will find themselves in trouble at some point.