Rising interest rates and falling house prices: Navigating the current home loan market from first home buyers to seasoned investors.

What is happening in the market?

It seems that everywhere you look at the moment, there’s even more news about the current state of the New Zealand housing market. Whether it be interest rates rising through the roof, falling house prices throughout the country, or a downturn in buyer activity, the looming threat of inflation makes it feel as though no one is safe.

It is predicted that conditions are likely to get worse before they start to get better. With the OCR expected to increase to 5 percent in the coming months, interest rates would increase to around 7.5 percent. However, these are predictions and it is impossible to definitively say what will happen until it does.

Although, we can discuss what is happening right now.

Currently, the supply and demand chain in New Zealand is under pressure. Due to lower interest rates in 2021 to boost the economy in the aftermath of the pandemic, demand for goods and services is high, while the supply is low. The OCR is raised accordingly to drive up interest rates and decrease spending, forcing consumers to stick to tighter budgets and only purchase what is necessary. By doing this, it allows the supply to catch back up with the demand. However, we have not yet reached this peak, so New Zealanders can expect to see further increases over the coming months before it begins to average out again.

Due to the rising interest rates and future forecasts, Corelogic[1] reports that buyer activity in the property market is falling across the country, most notably by 28 percent in Hamilton and 25 percent in Auckland and Tauranga. Because of this, property values are beginning to fall. Compared to last quarter, the QV House Price Index[2] shows that the average home in New Zealand dropped in value by about 5.4 percent, and in the first 10 months of the year there was around a 9.7 percent decrease in value across the country.

Looking at buyer groups, it appears that those struggling to purchase (or holding off from purchasing) are existing property investors who have a mortgage. There has been a steep decline in buyer activity amongst this group in recent months while most other groups have remained the same or have fluctuated by about 1-4 percent. Overall, mortgaged investors have instead seen a decrease of about 6 percent since 2016.

Our Mortgage Philosophy

Whether it is your first home, a renovation/project, or a flash penthouse, owning a home is an important part of the kiwi dream. As anyone will tell you, there is no better feeling quite like it. That’s the emotional side of course – but more important is the financial side. There is a lot to think about, and our experts are on the case to explain market trends, lenders, rates, repayments and more.

Fixed vs Floating

Choosing a fixed or floating interest rate will determine what your mortgage repayments will look like. While you can lock in a fixed term rate for a specified period of time, you can pay off a floating rate for as long as you like. During a fixed rate period, your repayments will remain the same. However, on a floating interest rate, your repayments will change as the interest rates fluctuate over time. If you are on a floating rate you can choose to switch to a fixed rate at any time. Depending on your personal financial situation and your desired lifestyle, each option may have it’s own benefits and drawbacks that play into your decision.

Split Home Loans

However, there is a way to reap the best of both worlds when it comes to structuring your home loan. By splitting your home loan, you can pay off portions of your loan at different rates. There are many options to split your loan, including through both floating and fixed rates and various fixed rate terms. This is a strategic way of personalising your mortgage to suit you and your lifestyle, and to ensure that you are paying at the best rates possible.

What Are Your Worries?

It seems like it’s one thing after another in the world right now, with a fading light at the end of the tunnel. With news being more accessible than ever, we are constantly bombarded by conflicting opinions and stories that dramatise the facts for a few extra clicks online. It’s easy for anxieties to build up, especially when your financial situation is concerned. One of the best ways to combat this is by understanding the facts and looking at the bigger picture to build your own opinion. Getting in touch with an expert who can give you certainty in an uncertain market by taking a look at your financial situation and recommending what can work best for you.

Now is a better time than ever to get in touch with your Lifetime mortgage adviser to discuss your next steps in tailoring your mortgage to you.

Click here to book an obligation-free chat with one of our financial advisers.

Article by Sarah Maclennan

Disclaimer: This article has been prepared for the purpose of providing general information, without taking into consideration any particular person's objectives, financial situation or needs. Any opinions contained in it are held by the author as at the report date and are subject to change without notice.

[1] Corelogic Property Market and Economic Quarterly Update October 2022

[2] qv.co.nz/price-index/