Since the Reserve Bank cut the Official Cash Rate (OCR) last month by 25 basis points, we have seen further drops in interest rates – particularly the fixed one, two and three-year rates. It was only a couple of months ago when interest rates were sitting on the fence see-sawing either slightly below or slightly above the 4% mark. Interest rates are now sitting solid at sub 4%. This makes interest rates even lower than the ‘slashed’ rates during the Global Financial Crisis.

And there is still plenty of room for the RBNZ to cut rates further and it won’t hesitate to do so if needed, to stimulate inflation.

The general view is that central banks will continue to cut rates in several markets, including New Zealand, Australia and the United States because of a combination of slowing growth in most of the developed economies and worsening trade tensions that could push some economies into recession.

Although the New Zealand housing market has certainly peaked and is slowing in various areas, there are key local factors emerging that could create a major stimulus for house prices. The sharp drop in fixed mortgage rates; the cancellation of a capital gains tax; and a growing population with a net addition from migration flows are all key local stimulus factors.

It is an interesting time for property investors. With the continued increase in population growth (we are set to hit five million people soon) and the lack of housing, there is a growing rental shortage in key areas around New Zealand. This will put upward pressure on property rental yields. Property investors are currently in the sweet spot of falling interest rate costs and increase rental yields - with no capital gains tax. A nice place to be!

With interest rates so low and debt levels still relatively high, now is the time to look at taking any ‘extra’ cash and building up a buffer for any potential increases in interest rates and/or to take advantage of opportunities for additional property investment.

Opportunites For Borrower

Borrowers with good profiles continue to be in a position of strong negotiation. Both the two and three-year rates present value.

As always, it’s worthwhile shopping around for the best rate or working with a mortgage adviser to negotiate on your behalf.