Shorter-end mortgage rates expected to fall below 2% next year – ANZ

by Duffie Osental30 Sep 2020

Lower mortgage rates may be on the horizon, but its impact on the housing market may be subdued, according to economists at ANZ.

In its latest Property Focus report, ANZ said that the New Zealand housing market and new mortgage lending are bright spots in “an economy otherwise facing an enormous amount of uncertainty” and forecasted shorter-end mortgage rates to fall below 2%, with the 1-year rate expected to “trough at 1.75% in April next year.”

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“Low mortgage rates are lending a hand, and monetary policy is expected to provide even more stimulus, with the OCR [official cash rate] expected to go negative next year alongside a bank Funding for Lending Programme (FLP),” the report said. “We expect the OCR will be lowered by 50bps to -0.25% in April, and that the FLP will strengthen pass-through to retail rates. The impact of the combined policies is uncertain, but short-term fixed mortgage rates could dip below 2% next year. Further declines in mortgage rates will help to shore up the housing market, spending and confidence.”

ANZ warned, however, that the market is set to go up against a “range of dampening factors that are likely to become more evident by year end.”

“House listings are low and have not played ‘catch up’ after lockdown, contributing to tightness in the market, price rises, and anecdotes that the market is hot. Factors that have supported the market – lower mortgage rates, wage subsidies, pent-up demand, and the like – have impacted the market quickly. But dampening factors are expected to weigh more slowly, including weak migration, the economy coming off fiscal life support, and a weaker economic pulse as the impacts of the closed border are felt.”

“Because of this, we expect that lower mortgage rates will provide a cushion but won’t propel the housing market significantly. That said, there are offsetting forces and a ‘muddle through’ is possible.”

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