How low can mortgage rates go?

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How low can mortgage rates go?

By Josh Bronkhorst, Managing Director, Mortgage Link (NZ)Ltd. & Insurance Link (NZ)Ltd.

Property markets on both sides of the Tasman have recently cooled down from their record highs – with the big cities being hit the hardest and value growth slowing across the regions. As all eyes turn, once again, to monetary policy and rate cuts, one question keeps popping up: What’s next for mortgages?

In Australia, the average first home buyer home loan amount has increased by 370% since 1991, from $73,700 to $345,800 (in 2018).

The Australian and New Zealand property markets have a number of similarities, and some key differences. Both markets have boomed in past years, thanks to lower-than-ever mortgage rates and steady population growth. Both countries have experienced a two-speed pattern, with big cities driving up prices and regional areas getting the ripple effect. And importantly, both reserve banks decided to cut their official cash rates this year – for the first time since 2016.

But as similar as these two landscapes might be, what the future holds may depend on their differences. How property is taxed, for example. While New Zealand has just abandoned the idea of introducing CGT, Australia relies heavily on its stamp duty for revenue. Fewer property sales mean less money in the state coffers, which may push the government to raise tax on housing – putting pressure on affordability.

There’s no denying that the New Zealand market is slowing, but certain factors are more likely to mitigate risks. Unlike Sydney and Melbourne, Auckland does not have an oversupply of properties. Plus, while floating rates dominate in Australia, New Zealand ‘fixedrate wars’ have yet to show signs of dwindling, helping more firsthome buyers get on the ladder. And lastly, New Zealand loan-to-value restrictions have proved a barrier for many borrowers, but they have also improved the overall resilience of the banking system. So, back to the initial question: what’s on the cards for mortgage rates? With home loan rates already at an all-time low both in Australia and New Zealand, further OCR cuts are unlikely to be passed on in full to borrowers.

Mortgage advisers write one out of every two mortgages in New Zealand.

Australian lenders made this clear in July, when some major banks decided to pass on just 18 or 19 basis points of a 25-point central bank cut to 1.25%. In the meantime, the Reserve Bank of New Zealand has left the official cash rate (OCR) on hold at 1.5%, with another cut possibly on the way by the end of the year. Only time can tell how this might play out for mortgage rates, though there’s a risk that the RBNZ’s proposed capital requirements will push consumer rates back up in November… Property – It’s always a great topic. If you are thinking of taking advantage of low mortgage rates and making a move, I strongly recommend talking to a mortgage adviser. They know the ins and outs of the market and can help you find the right mortgage structure for your needs and goals.

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