“Inflation is peaking, interest rates may fall” – Jarrod Kerr Kiwibank 4/05/23.

OCR anticipation is another 0.25% hike on 24th May to 5.5% but some economists do not believe this necessary but feel it’s a realistic move that the RBNZ are going to take. We have seen interest rate movements across the lenders over the past couple of weeks, some increasing short term rates and some decreasing for example, 2 and 3 year interest rates reducing by 10bps to 6.49% and 5.99% for one major bank. Although, if I were a borrower I wouldn’t look too far past 1-2 year fixed rates.

The predictions are suggesting a November interest rate cut or, a February interest rate cut early next year. Wholesale rates have been falling (albeit back up 0.2% this week) which the banks use to hedge interest rates so it further compliments the view of some cuts in the not too distance future.. we are nearly half way through 2023 after all!

10% of mortgages are currently on a floating rate which could mean customers are paying down their debt more quickly or, they’re waiting for interest rate movements to see what happens before refixing. Short term fixed rates are being favoured with the view that there may be some relief in sight and floating interest rates are said to increase again in the coming month or so as the OCR could rise for the last time this year.

Easing of LVR rules were announced last month, to take effect from June – this could demonstrate an underlying fundamental pointing towards a turning in the house price cycle and be a good indicator that the current lending activity presents less risk to financial stability. It’s anticipated potential further relaxing in the LVR’s by the end of the year and there will continue to be more of an ability to lend. We’ve already seen a major bank open its books to new and existing clients for less than 20% deposit options – great news for first home buyers in particular!

In addition to this, we know the Central Bank have armed themselves with the Debt-to-Income ratio tool and it is likely they may use these effective March 2024 but there’s a lot of movement and changes likely to come until then. These DTI’s are likely to impact investors more so than those looking to get into their first or next home.

Cost of living

The cost of living for NZ households increased by 7.7% in the 12 months to March 2023 (Stats NZ). The key drivers for the increase were due to the 38% spike in mortgage costs and a 12% surge in food costs. Households are and will be feeling the mounting pressure and with half of the nation’s mortgages rolling off of fixed rates in the coming months, we will start to see more impacts as these do.

Consumer confidence figures are the lowest they’ve been since 1989, lower than the GFC period and we’re seeing this come through in our conversations when it comes to how clients are feeling about their financial position and future state.

From Tony Alexander’s monthly survey of real estate agents with REINZ , it was evident that buyers are still highly concerned about interest rates. “But at some stage people are going to acknowledge that rates have almost certainly peaked and that falls will now be occurring over the next two years. When that realisation shift happens buyers will come back into the market – or at least those who can handle current bank stress test rates of 8.5% and higher.”

Although pessimism is felt quite widely now, there are indicators that things are close to a turning point in many aspects.

Sam Stepney
Head of Strategic Partnerships & Activation
+64 21 992 178
sam@vegalend.co.nz