Home loan borrowers face rising mortgage rates and reduced availability
The Reserve Bank has decided to lift the official cash rate by 0.5% to 2% and indicated a higher and earlier peak than previously envisaged – now perhaps 4% or so by mid-2023, rather than about 3.5% by late 2023.
Read more: Reserve Bank of New Zealand lifts official cash rate
“For the housing market, the implications are clear,” CoreLogic said. “We’re not yet at the end of this rising cycle for mortgage rates, and that will keep a degree of downwards pressure on property values, especially since about 50% of loans are currently fixed and are yet to face the true costs of higher rates. But that day of reckoning will happen within the next 12 months.”
For the record, the central bank has indicated that house prices might decline by about 12% from peak to trough.
“Granted, we’re probably closer to the end for this phase of rising mortgage rates than the start, given that the increases to date have been larger/faster than what’s actually happened to the OCR so far,” CoreLogic said. “But that may not be much comfort for new buyers now looking at mortgage rates of at least 4.5-5%, and heading higher, or existing borrowers who are rolling off rates as low as 2-2.5% from 12-18 months ago.”
The data and analytics provider noted, however, that it’s not just the cost of debt that is a factor – it’s also the reduced availability.
“Sure, official debt-to-income (DTI) ratio caps have been delayed,” CoreLogic said. “But banks are probably enforcing their own DTI limits to some degree anyway, while loan-to-value ratio rules are still biting pretty hard too, and pre-approvals for low deposit loans are reportedly very difficult to obtain. On top of all of that, the serviceability test rates are another barrier, now generally sitting at 7% or above.”
Read next: RBNZ to design debt-to-income restrictions
CoreLogic said growing fears about a recession, ultimately, may see the OCR settle at a lower level than currently projected by RBNZ, while a continued low unemployment rate should help insulate the property market from major downturn to some degree.
“But it’s still looking likely that the current correction for property values isn’t over yet,” CoreLogic said.
