August - September 2021
RESIDENTIAL
T
his is mainly off the back of affordability pressures, the 40% deposit requirement and extended bright-line test for investors, the tightening of interest deductibility rules, as well as the approval for the Reserve Bank of New Zealand (RBNZ) to look at debt to income restrictions. Perhaps most urgently, the housing market is likely to be affected by signalled tighter monetary policy, which CoreLogic has been flagging for some time. Though the RBNZ held the official cash rate (OCR) unchanged at 0.25%, major banks have already started raising fixed-term mortgage interest rates. The recent uptick in mortgage interest rates is just the latest influencing factor in the New Zealand residential property investment landscape. Crunching the numbers for mortgage-holders The upward lift in interest rates by ASB, ANZ, BNZ and Westpac will impact new borrowers. For example, a 0.36% increase resulting in a 2.95% initial interest rate equates to additional repayments of $1,824 per year ($152 per month) across a recent home buyer’s $800,000 mortgage on a 30 year home loan term. Should interest rates keep rising, and reach the longterm average of 6% (which for now is a scenario-based indication, rather than an actual forecast), that same new buyer would pay an extra $19,164 in mortgage repayments per year ($1,597 per month), or around $4,800 per month in total repayments across the balance of the home loan term. Even a new borrower with a ‘lesser’ mortgage, say $500,000, will need to 64 propertyandbuild.com
Is this the turning point of New Zealand’s property market? CoreLogic’s quarterly market report indicates that the market is close to – or at – a turning point, Chief Property Economist Kelvin Davidson explains find another $246 to $388 a month ($2,952 to $4,656 a year) in repayments if rates move up to 3.5% or 4%. Those who have entered the housing market since 2014, the last time the OCR increased, have only experienced low interest rates, so the effects of a pattern of increases will likely come as a shock to many of those with a hefty mortgage, which includes many who have bought recently in Auckland and Wellington,
the most expensive markets. For those still trying to buy their first home, interest rate increases will raise the bar to entry. That said, an actual increase in the official cash rate is the next step in removing the emergency support for the economy. This directly affects the housing market, with borrowers already seeing mortgage rates increase – and from a low base for rates, as well as larger debts, that could
have quite a strong dampening effect on the market. Certainly, mortgaged investors’ share of property purchases has fallen in the past two to three months. On the whole, these events reinforce our view that sales activity and price growth are close to or at a peak and over the coming months sales activity and the pace of value growth are likely to ease. That is simply reinforced by the fact that the Government’s
