Interest Rates Are Rising But Are Property Values?

As 2021 enters its final weeks, there is no shortage of financial news and property developments.

We know that interest rates are on the rise. But are property prices still going up too?

And is it still a good time to fix your mortgage rates?

Well, it’s time to answer all those questions and more in this month’s write up of what is happening in the world of property and finance.

Let’s jump in!

Is Long Term The Way To Go?

For a long time, the trend has been to have a portion of your mortgage fixed at a 1-year term as that is usually where the cheapest interest rates are offered. With rates being fairly static and often trending downwards, many people have adopted this tactic.

But are times changing?

In recent months, the shorter-term rates have begun to climb from low 2% figures to mid 3% figures. So, is it time to change tactics?

Due to the combined factors of an increased OCR and the havoc that the Omicron variant is playing on the global economy, the financial situation feels quite volatile.

We are seeing a lot more people erring on the side of caution and locking in two and three-year rates for financial certainty [source].

Long-term mortgage holders have paid much higher interest rates in the past, upwards of 6%.

So, the feeling is to lock in a rate that is only at the 4% mark now. Some families are choosing to pay more in the short term to give themselves certainty on their repayments in the coming years.

However, there are two schools of thought at the moment.

ANZ Bank economists think you may have missed the boat if you are looking to fix it long term. They believe you may be better off securing the 12 monthly fixed rate and even if you see annual incremental increases, you can save money by not paying a higher amount from the start.

If you have a portion of your mortgage due to be refixed or you want to discuss your current structure, then now is the time to do it.

We aren’t sure what further impact the Omicron strain will have on the market going forward.

Temporary Clamp Down On Low-Deposit Loans

Is it getting even harder for first home buyers to enter the market? Possibly.

Several of the major banks have put a temporary freeze on approving low-deposit loans unless they fall in the new build category.

It doesn’t apply to existing home loan approvals or pre-approvals either.

This move follows the rules recently set by the Reserve Bank which dictates that only 10% of a bank’s lending portfolio could be made up of high LVR mortgage – those with less than 20% equity.

“ANZ Managing Director for Personal Banking Ben Kelleher says the move is needed to help the bank meet the new rules, which came into effect on Nov 1.” [source]

But, this is not the end of the road for low deposit loans. The freeze is only temporary and individuals with good assets and income will have their opportunities once the banks ensure they are adhering to the Reserve Bank rules.

The best thing to do is to be prepared for when that happens by getting solid financial advice about your situation now.

The Impact Of FOMO

FOMO, or fear of missing out, has been a huge driver for pushing house prices up.

Ever since New Zealand’s first lockdown in April 2020, buyers have been scared of missing out on a property, so have been paying whatever they need to secure it.

Often, those figures have been in excess of what the home should technically sell for.

“In a survey of real estate agents carried out in conjunction with the Real Estate Institute, it was found on average a gross 69% of agents each month indicated they were seeing FOMO on the part of buyers. In last month’s survey only 39% report such buyer angst. This is the lowest reading since April 2020 when 35% claimed they were seeing FOMO.” [source]

So, what will this decline in FOMO mean for house prices?

Well, there is less urgency in the market.

This could largely be down to other contributing factors;

  • like buyers experiencing difficulty obtaining finance due to debt to income ratios,
  • expenses being scrutinised via the Credit Contracts and Consumer Finance Act, and the temporary freeze on low deposit lending that we mentioned earlier.

Couple all of this with the rising interest rates and we are likely to see less upward pressure on house prices.

But of course, only time will tell what actually happens.

Are The Figures Skewed?

It is no secret that the average house price has risen markedly in recent years.

The national average is now over $1 million. But, is that an accurate depiction of what houses are really selling for?

Realtors are seeing an increased demand for higher-priced houses. So, the already expensive houses are selling for more, while there is actually an overall easing of the real estate market.

“Real estate agents are reporting a significant upswing in listings, while open home attendance rates are falling. Some properties are being passed in at auctions, which was unheard of a few months ago.” Nagel blamed this on rising interest rates, tougher rules on LVRs last month and a further tightening of credit rules with the CCCFA from December. [source]

While the national average home value has increased by 6.9% nationally, much of that is limited to the top 25% of properties by value.

So, what does it mean?

Well, essentially it means that not all house prices are increasing at an alarming rate.

There are still some affordable options available.

So, if you are considering purchasing, it is worthwhile exploring what your budget could be.

Reach out to Oliver Broomfield Mortgage & Insurances to discover what your buying potential could be.

The Holidays Are Coming

From us here at Oliver Broomfield Mortgage & Insurances & The Property Finance Centre, we want to wish you a very happy holiday season!

We hope you get the chance to spend some quality time with your friends and family and enjoy some of the beautiful places here in both the north & the south of NZ.

We will be taking a short break from 22nd December and will be back on 10th January 2022 to help with all your finance and property advice needs.

Have a Merry Christmas and a Happy New Year!