Following the Reserve Bank’s announcement this week that it was increasing the Official Cash Rate (OCR) again by 0.50% to 3.00% I thought you would be interested in knowing what impact I see this having on the housing market.
With this week’s latest increase made to the OCR the Reserve Bank is clearly telling the country that inflation in New Zealand must fall. Reserve Bank Governor Orr’s message to the market is that interest rates will be increased again if necessary to make the cost of borrowing more expensive. New borrowers are most likely to be impacted by these latest rate increases whereas homeowners who had the good sense to fix longer last year are currently immune. At this moment the banks have not passed on this latest increase to the OCR to their advertised fixed rates. This is partly due to the banks wanting to encourage more borrowers to take out new loans. The CCCFA and LVR restrictions coupled with a fear of overpaying have resulted in a dramatic decline in the number of new loan applications been received by the banks. Alarmingly there has also been a significant increase in the number of borrowers been forced to secure mortgage finance from 2nd tier lenders because of the CCCFA changes. It is my opinion that if the country goes into recession we’ll look back and reflect that the CCCFA changes were one of the key reasons the economy went the way it did.
On the subject of where I see house prices heading most predictions now see a 20% drop in house prices from their peak. With the current decline in values witnessed to date many houses are now back to where they were sitting in March 2021. The earlier gains of 2021 have in many instances been lost now. People who are currently selling need to appreciate that the longer they take to secure a buyer the less they are likely to receive for their property. Overall, it is very much a buyers’ market. Those who can still secure finance from a mainstream lender have lots of properties to choose from now and a lot less competition to worry about at open homes.
In respect to a current interest rate strategy as always borrowers need to decide themselves which fixed term best suits them financially. Remember New Zealand’s interest rate environment over the last 2+ years has been largely artificial having been determined by COVID-19’s financial impact on our economy. With inflation very high and interest rates now increasing regularly the majority of borrowers should obviously want some degree of certainty with their repayments.
Please let me know if you would like to discuss the current interest rate you are on with your bank or are needing assistance with finance to purchase a new property.
Kind Regards
Simon
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