Savings hit post-pandemic high as Westpac flags limited relief on borrowing costs
New Zealand households lifted their savings rate to the highest level since the pandemic lockdowns in the March quarter, even as Westpac economists warn there's little room left for further falls in mortgage rates this year.
Savings climb as income growth splits along uneven lines
According to Westpac's latest Household Finances Chart Pack, household savings rose by $2 billion over the March quarter, building on solid gains over the past three years, and pushing the savings rate to 3.3% of disposable income.
Overall household disposable income has risen around 5% over the past year, though Westpac notes much of that reflects a 1.5% rise in the number of households, rather than gains for individual households. Adjusting for population changes, average household disposable income rose 3.8% in the year to March, up from 3.1% at the end of last year.
Senior economist Satish Ranchhod (pictured) points out the income growth isn't evenly spread. Entrepreneurial earnings are "up 14% over the past year," largely driven by stronger returns in the agricultural sector on the back of firm commodity export prices, while wage and salary growth has remained comparatively subdued.
Housing values flatline while financial assets pick up the slack
Household wealth grew a modest 1.5% over the past year, but the composition tells a more complex story for brokers and their clients. Financial assets rose 3.3%, offsetting a 0.5% fall in the value of housing and land assets, which "have essentially shown no growth since late 2023."
Interest cost relief unlikely to continue
Households have enjoyed five consecutive quarters of falling interest costs, easing pressure amid broader cost-of-living increases. That relief looks set to stall, however.
"We don't expect further significant falls in interest costs with mortgage rates pushing higher in recent months," Ranchhod notes, pointing to renewed inflation concerns following the Middle East conflict, and an RBNZ still expected to lift the official cash rate "at a measured pace over the coming months."
The RBNZ's next call lands on 8 July, with a hold at 2.25% now widely expected after easing oil prices removed one of the key arguments for an earlier hike. Most major bank economists expect the real tightening to begin in September, with ASB forecasting the OCR reaching 3.0% by year end and effective mortgage rates climbing to 5.3% by mid-2027.
Still, in the immediate term, Westpac doesn't anticipate a sharp jump in household interest costs, noting that around 90% of New Zealand mortgage borrowing is fixed, typically for one- to two-year terms — a buffer that will shape refinancing conversations brokers have with clients over the months ahead.
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