Record-low OCR could prompt homeowners to trade up

by Roxanne Libatique19 Aug 2019

A real estate expert has said that the record-low official cash rate (OCR) could prompt homeowners to trade up to a new home.

After the Reserve Bank’s move to cut the OCR to a record low, experts have been explaining how homeowners and buyers will be affected.

Jeremy O’Rourke, managing director at Lodge Real Estate, commented that the Reserve Bank’s move could not only prompt homeowners to buy a more expensive home but also urge buyers currently in the market to lift their price thresholds.

“The half a percentage point drop in OCR is quite significant for people who are carrying a mortgage. Suddenly, you can carry a slightly bigger mortgage for the same interest cost. For instance, if you are carrying a $200,000 mortgage at four percent, you can now carry a $235,000 mortgage at 3.5%. Both scenarios cost you around $8000 per year in interest,” O’Rourke said.

“Being able to carry a slightly higher mortgage creates a tipping point where buyers can stretch up to a new price bracket. We certainly saw this phenomenon happen years ago when interest rates fell from eight to four percent, for instance.”

Read more: Falling OCR could put more pressure on New Zealand's housing crisis

O’Rourke warned buyers in the market for a new home that shortage could also affect house prices – as seen in Hamilton.

“During July, 280 homes were sold in Hamilton, which compares to 252 last month and 259 in July 2018. The number of sales, however, does not reflect the intense demand in the market right now,” O’Rourke said.

“This intense demand is coupled with incredibly short supply. That means we are likely to see prices rise over the next few months as we head into spring.”

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