Following the Reserve Bank’s announcement this Wednesday that it was increasing the Official Cash Rate (OCR) again by 0.50% to 3.50% I thought you would be interested in knowing what impact I see this having now on the housing market and mortgage rates.
New Zealand is currently experiencing a housing market downturn. Lots of real estate industry spokespeople and property investment “experts” are now appearing on the morning news shows attempting to talk up the housing market however the reality is that house prices are falling, and look set to continue falling for some time. The introduction of the CCCFA changes late last year were the initial catalyst of this decline with many people suddenly finding themselves unable to borrow enough from the banks. Most people selling this year have had to come to terms with a housing market that sees current buyers, particularly first home buyers, unable and unwilling to pay the prices previously expected, especially as mortgage rates continue to increase.
Whilst some of the banks have now made good concessions to the way in which they assess loan applicants under CCCFA these changes only really benefit borrowers on above average incomes. Many potential borrowers simply no longer qualify for a home loan because they don’t have the magic 20% deposit now required by most banks. Bank “test rates” are also proving the biggest new hurdle to securing a home loan. With the continuing OCR increases this year banks are now having to stress test new mortgages at or above 8% and this means the borrowing power of most people has been significantly impacted. This has all resulted in an overall lack of confidence in the housing market. The cost-of-living increases caused by high inflation are making many people think twice about borrowing money. Provided you can still secure finance though it remains very much a buyers’ market with lots of properties to choose from and a lot less competition to worry about at open homes.
Mortgage rates for borrowers have now returned to levels that were the norm in New Zealand before the pandemic hit. The artificially low interest rate environment that the Reserve Bank created earlier means we have a generation of first home buyers who haven’t yet had to service a home loan at “normal” levels. If the Reserve Bank continues to raise the OCR to combat inflation, it’s a certainty that the cost of borrowing will also keep increasing. At present the majority of new buyers and existing homeowners re-fixing are opting for either a 12, 18 or 24 month term. It’s very hard to forecast where mortgage rates will be in a year’s time, but it seems almost certain that in future borrowers should not expect to see mortgage rates as cheap again as they were during the pandemic. The Reserve Bank’s slashing of interest rates and keeping them at record low levels too long has clearly been a key cause of a lot of the inflation the country is currently experiencing.
Please let me know if you would like to discuss the current mortgage 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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