Last week’s reduction of the Official Cash Rate for the first time in four years is the start of mortgage interest rates falling below five percent for many homeowners over the coming months, predicts Auckland property financier James Kellow.
The comments from the Director of New Zealand Mortgages & Securities follow the Reserve Bank cutting the OCR to 3.25% which has since led to many retail banks slashing their mortgage rates.
“If I was a first-time home buyer I wouldn’t be rushing out and borrowing huge sums of money thinking this is as good as it gets, as I believe it’s going to get even better.
“We’re now already seeing some shorter term fixed mortgage rates sitting at around 5.3%, but I think there’ll be at least another cut to the wholesale rates in the coming months which could see interest rates for many homeowners below 5% again, so prospective buyers should be patient and keep their nerve.”
Mr Kellow says compared to Australia, New Zealand’s mortgage rates remain relatively high. Many fixed rates offered by retail banks in Australia have been well below five percent for some time.
“What points to our rates dropping below five percent more than anything else is the fact that the Reserve Bank is increasingly concerned about the impact of falling export commodity prices which has been more pronounced than even they expected.”
He says falling interest rates this year, when many were told last year that interest rates could hit eight percent in 2015 is a timely reminder of why people should always entertain putting at least part of their mortgage on variable.
“I appreciate real estate agents, particularly in Auckland, are busy running the mantra “it will never be cheaper than now”. However I encourage people to get on a mortgage calculator and see the hugely positive impact a slightly cheaper interest rate can have on their mortgage repayments.
“In many cases locking in a cheaper mortgage rate is often better on the back-pocket longer term than trying to negotiate a slightly lower house price. So with falling interest rates, increasing housing supply, and LVR and tax changes targeting investors from 1 October, it’s highly plausible that it may actually be better to buy next summer, than this winter.
“People are sitting in auction houses every day missing out by a country mile and no doubt are increasingly despondent. My message to them is stay positive. The more time it takes, the more chance of interest rates falling, and the better that will be on your household budget,” says James Kellow.