Squeeze on mortgage holders deepens

With another 0.75% increase in the OCR seemingly on the cards for February next year after yesterday’s not unexpected 0.75% rise, it is likely fixed mortgage rates will push towards 7% or higher in the next few months, says CoreLogic.

Thursday, November 24th 2022

Given the evidence inflation is proving tougher to stamp out than was previously expected and more OCR increases are in the pipeline after February next year to a 5.5% OCR, floating rates are expected to rise shortly and fixed rates are unlikely to have peaked either, says Kelvin Davidson, CoreLogic’s chief property economist.  

“After some ‘green shoots of optimism’ had started to emerge through the first half of October, the stubborn inflation reading has in some ways pushed the country into ‘phase two’ of the property market downturn,” he says.

Based on the existing average fixed mortgage rate across the stock of loans of 3.8%, the fortnightly mortgage repayment for every $100,000 of debt (30 year term) is around $215 – or roughly $5,590 per year. But somebody then refinancing to a current rate of 6% would see that repayment jump by $1,602 per year – or more than $8,000 if they had a $500,000 loan.

A potential future rate of 7% would see a change of almost $12,000 for a $500,000 loan. On that note, it’s important to point out 20% of home loans are fixed but due to reprice in the next six months.

As always, however, some perspective is warranted, and a key factor over the coming months remains the labour market, says Davidson.

If unemployment can stay relatively low, most borrowers will continue to service their loans (even at higher mortgage rates and as negative equity becomes more prevalent), and this should help to limit the risk of a rise in bad debts and the downward spiral that could be kicked off by an increase in mortgagee sales.

“Overall, it’s likely the weakness for property sales volumes will linger well into next year. After perhaps about 67,000 sales this calendar year (the lowest since 2010), there may only be a small revival next year to about 68,000 – as rising wages and net migration are offset by a soft economy and higher mortgage rates.”

Meanwhile property value falls are far from over yet either, presenting an opportunity for first home buyers, he says.

The labour market will be watched closely and also any signs the OCR is ‘overshooting’ and therefore the likelihood rates could need to be cut again fairly sharply, says Davidson.

Indeed, this was quite a ‘hawkish’ decision from the RBNZ, indicating that the OCR may eventually have to rise all the way towards 5.5% next year. The RBNZ doesn’t anticipate CPI inflation dropping below 7% until perhaps the middle of next year, when the economy could have tipped into a small recession, with the unemployment rate edging higher (albeit more due to a larger labour force rather than mass job losses). They also expect the ultimate fall in house prices (CoreLogic House Price Index) could be -20% by the end of next year.

So what does all of this mean for the housing market?


On Tuesday, November 29th 2022 1:22 am Barry Read said:

Between 1985 and 2022 the average OCR rate was 6.85%. 2000 - 2008 Average 6.25%. 5.5% projected for Feb 2023, just getting close to historical average.

Unity 6.99
Heartland Bank - Online 6.99
ICBC 7.05
SBS FirstHome Combo 7.05
China Construction Bank 7.09
Co-operative Bank - First Home Special 7.10
Wairarapa Building Society 7.15
Co-operative Bank - Owner Occ 7.30
Kiwibank Special 7.35
BNZ - Classic 7.35
TSB Special 7.39
China Construction Bank 6.75
Heartland Bank - Online 6.85
ICBC 6.85
Wairarapa Building Society 6.94
Unity 6.99
Westpac Special 6.99
Kiwibank Special 7.05
ASB Bank 7.05
BNZ - Classic 7.05
AIA - Go Home Loans 7.05
Co-operative Bank - Owner Occ 7.05
China Construction Bank 6.40
Westpac Special 6.49
ICBC 6.49
AIA - Go Home Loans 6.69
BNZ - Classic 6.75
ASB Bank 6.75
Kiwibank Special 6.79
SBS Bank Special 6.79
TSB Special 6.79
Co-operative Bank - Owner Occ 6.85
Kainga Ora 6.99
SBS FirstHome Combo 6.19
AIA - Back My Build 6.19
ANZ Blueprint to Build 7.39
Credit Union Auckland 7.70
ICBC 7.85
Heartland Bank - Online 7.99
Pepper Money Essential 8.29
Co-operative Bank - Standard 8.40
Co-operative Bank - Owner Occ 8.40
Kiwibank 8.50
Kiwibank - Offset 8.50

More Stories

Apartment market takes a dive

Thursday, December 07th 2023

Apartment market takes a dive

Increasing constraints, including the cost and availability of credit, have meant a major slowdown in the apartment market. Consents dropped by 36% in the year to October – the lowest total since July 2017.

Auckland housing market rebounding

Wednesday, December 06th 2023

Auckland housing market rebounding

Wealthy Auckland buyers who can afford $2 million plus houses have returned to the market in force.

Tenant left with damages bill despite not being responsible

Tuesday, December 05th 2023

Tenant left with damages bill despite not being responsible

A woman who left a rented Manurewa, Auckland property she shared with her partner after discovering he was using methamphetamine is still liable for a half share of Tenancy Tribunal awarded exemplary damages and other debts owed to the landlord.

Private landlords should be included in bill – Property Brokers

Monday, December 04th 2023

Private landlords should be included in bill – Property Brokers

A big year is ahead for the property management industry.