Low interest rates of little use to new borrowers
Mortgage rates are hovering between 4.5 per cent and 5.5 per cent – but if you cannot service a loan at 7 per cent, bad luck.
CoreLogic’s latest property market update for April shows a 2 per cent lift in property sales year-onyear, nationwide.
Property value growth was 7.6 per cent for the year, the strongest rate since June 2017.
CoreLogic head of research Nick Goodall said the growth in prices had been supported by low interest rates.
‘‘Fixed mortgage rates are generally flat – even dropping slightly in recent weeks – and with the official cash rate set to remain on hold until late 2019, the lending environment looks stable for the foreseeable future,’’ he said.
‘‘Such a stable mortgage rate backdrop will reassure the 90 per cent of New Zealand borrowers on a floating rate, or [who] have their fixed rate review due, who are exposed to rate rises over the next two years. The best borrowers continue to enjoy strong competition from the banks.’’
But he said people who could not satisfy banks’ servicing tests, which ensure they could pay their mortgages if rates went to 7 per cent or more, could find they were not able to secure funding at all.
‘‘Especially if they are proposing to pay off their loan interest only.’’
Broker Glen McLeod, of Edge Mortgages, said applications were being tested at rates even higher than 7 per cent, and that was frustrating for people when there were five-year rates they could lock in at 5.5 per cent. ‘‘That would combat any increase in the interest rate.’’
He said it was not even clear to the market that the next move would be up. New Reserve Bank governor Adrian Orr said this month that the next official cash rate move could be up or down.
‘‘We might be where we are for a long time,’’ McLeod said. ‘‘Why hit the panic button? Everything seems to be about making things harder and harder. Why?
‘‘Why should we say if you can’t afford 7 per cent you can’t do it? It could be 2 per cent to 3 per cent different [from 7 per cent] for quite some time.’’
CoreLogic’s buyer analysis indicated people moving from one property to another were not very active in the market in April, but multiple property owners had stepped into the gap.
They were responsible for 38 per cent of sales.
‘‘Investors don’t appear to be at all put off by increased costs or regulatory pressures, only being held back by tougher bank lending criteria,’’ Goodall said.
First-home buyers, at 23 per cent of the market, had their highest market share in more than a decade. ‘‘They’ve benefited from their willingness to compromise on location or quality and ability to access KiwiSaver funds and potentially even a first-home grant for their deposit.’’
There was regional difference in sales volumes. Dunedin’s was up 8 per cent while Auckland was down 3 per cent.
The annual rate of rent growth was 4.6 per cent nationwide, while investors’ yields have fallen to just over 3 per cent.