Banks may start lifting mortgage rates

by Ksenia Stepanova05 Dec 2018

New Zealand property values have grown at a ‘modest pace’ of 1.3% over the last quarter according to CoreLogic’s latest QV House Price Index, with Auckland achieving positive growth of 0.1% for the first time this spring.

Hamilton and Wellington both saw dips in value in November, though quarterly growth remained strong in Lower Hutt (5.8%) and Porirua (4.6%). Dunedin was the regional standout, recording annual growth of 11.7% by the end of November.

According to head of research Nick Goodall, the Index “illustrates the continued strength of the provinces” and highlights a competitive borrowing environment – though a changing environment may mean banks will slowly start to lift their mortgage rates.

“Banks offering low mortgage interest rates have enabled good borrowers to secure the finance required to continue to act in the market,” Goodall stated. “Good borrowers are those who can meet more stringent requirements from the banks, most often by way of more prudent expense calculations.”

“Tighter banking standards have helped define the property market in 2018, with more robust expense approximations restricting the number of available borrowers,” he explained. “This has led to somewhat of a mortgage rate war, with banks jostling to secure market share from each other.

“The loosening of LVR restrictions can certainly lead to extra demand for properties, but the other side of that is that banks may be required to have greater capital against their loans. If they do, it may lead to them having to charge higher interest rates. That would mean essentially borrowers having to borrow the same amount of money which again reduces demand, so the two things really add different balances to the market.”

The foreign buyer ban also has the potential to impact property value, though Goodall says its effects on the property market are currently debatable at best. While there is some evidence that it may have impacted asking prices in Auckland and Queenstown Lakes District, it is not substantial.

“There’s no real compelling information around the impact of the foreign buyer ban at this stage, just a few indications that there might have been some influence around asking prices in Queenstown,” he stated. “But some of that had already happened even before the buyer ban came in. It’s a little bit difficult at this stage to solidly link the two, but it is a possibility.”

The market is anticipating a typical holiday slowdown in December and January, and predictions for 2019 will likely start coming to the forefront in February.

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