Lower rates, higher deposit criteria, another lockdown, more house price rises. It is just another month in the property market!

While property investors are being targeted now regarding their increased demand for property, what has really created the increase in prices is the lower interest rates.

I checked emails from roughly 12 months ago prior to the March 2020 lockdown and the first couple of quoted rate emails I can see looked like this:

It does not take a genius to see that there are some significant savings here. While not many borrowers are taking the longer-term rates at present, someone who decided to fix now for five years at a rate of 2.99% would pay $65,000 less in interest costs on a $1 million mortgage than they would have through Bank A only 12 months ago.

This is why economists are still predicting increases across the year. We are, however, seeing longer interest rates starting to trend up as feelings about the global economy improve. Short-term interest rates will stay low and still have the potential to dip a tiny bit lower as the Reserve Bank’s Funding for Lending programme has not been utilised to a high degree by the banks at this stage.

Now is an important time for borrowers to assess their individual position and see if continuing to fix short term is the right call or if moving to have some longer-term certainty makes more sense. I expect to see more borrowers adopting a hedging strategy of breaking debt over different terms, so not all mortgages come off at the same time.

I expect that we will continue to see a high level of market activity over the next couple of months as investors who were preapproved prior to policy changes at either 70% or 80% loan-tovalue ratios (LVRs) look to purchase prior to these preapprovals expiring.

As per what I wrote last month and now on the back of the LVR change, non-banks will become more useful. There is an 80% investment LVR product in the market with interest rates starting at 3.34% which is lower than what banks were offering for that term only 12 months ago. There have still been some dips in shorter term interest rates with some banks coming out with a one-year rate of 2.19%, and HSBC announcing their 1.99% rate – headlining as New Zealand’s lowest mortgage rate ever.

These short term reductions and the possibility of further lockdowns might mean we see shorter term interest rates remain low for a period, which could encourage short-term fixing and short-term savings. Assuming borrowers have equity and can meet lending criteria, these lower interest costs could add more fuel to house price inflation in the short-term. ■