Recent changes in the New Zealand market have seen a significant drop in property mortgage interest rates
In New Zealand, our property mortgage interest rates have consistently sat at around 5-7% for many years. The impact of interest rates on residential property is simple: the lower the rates, the more affordable the property becomes.
Historically low interest rates: what this means for residential properties today
Low interest rates allow homeowners to pay off their mortgages more quickly. This is done by keeping repayments the same after locking in low rates when they become due.
These historically low rates let the property market continue to grow or stabilise, compared with rising prices which would put pressure on the property market and consumer confidence.
How does this affect today's market? When interest rates change, it disturbs the security and consistency established when investing in property – impacting both buyers and sellers.
What’s been happening throughout the market?
Recent changes on a global and international scale have opened up a space in the property market, creating an opportunity for investors and sellers.
- Drop in OCR and interest rates: Previously, the OCR sat between 2.5 - 3.5%, but over the last two years we have seen an unprecedented cut down to 1%. With this change comes the increasing drop in house prices and, as a result, interest rates have fallen. Recently, we’ve seen interest rates on mortgages sitting lower than they ever have.
- Rate of annual housing growth slowing: New Zealand’s median property price has slowed from a 6.9% increase in May 2018, to a significantly lower rate of 2.3% in May 2019. Over this same period of time, Auckland’s housing prices have dropped by 1.9%. The Overseas Investment Amendment Act 2018 has reduced activity in the marketplace. New Zealand has reached an affordability ceiling and speculators have exited the market.
- Weaker relationship with trade partners: Over recent years we have witnessed slow growth between many of New Zealand’s trading partners and contributors. This includes relationships with the US- China trade negotiations and the impact of Brexit in the UK and Europe. We’ve also experienced the previous tightening of Chinese credit growth.
What does this mean for investors and owners of residential property?
Because of the drastic drop in interest rates, home owners could see lower repayments, and find debt servicing more affordable.
While the recent developments in the market predict a positive impact for residential home owners and investors alike, there are smart ways to go about anticipating and responding to the changes.
If you’re buying:
With mortgage interest rates at an all time low and wages steadily rising, there seems to be an improvement for house affordability – especially for first home buyers. The government has previously required investors to pay a 40% deposit, but that has now dropped down to 30%.
Lower interest rates mean you have the ability to service more debt and therefore spend more on a residential home. A housing shortage ultimately causes unstable or increasing property prices as interest rates decrease further.
Now appears to be a good time to invest. Given the security around current interest rates, and a low return from bank term deposits, now is a good time to look at investing in property and entering the property market.
If you’re selling:
If you’re an existing owner of a residential property, it’s important to be aware that the market is rising. The recent changes to interest rates means you’re able to get more equity out of your property for other investments.
Get your property valued. Getting an accurate value for your property is always the first step to establish where you stand in the market. Given the recent changes to interest rates, it’s important to get a current value on your residential home if you’re looking to sell.