Property Market Update

The New Zealand property market has shifted 180 degrees within the past 6 months and we now find ourselves in a buyers’ market.

What’s Changed?

Increasing interest rates, cost of living and LVR lending restrictions.

These are the major reasons influencing the shift in the market.

Simply, people cannot borrow what they could have 6 to 12 months ago on the same income.

Test Rates:

When assessing mortgage applications, Lenders use a test rate to see how much you can comfortably borrow now and if interest rates were to increase. Each Lender uses a different test rate, but most are currently in the 6.5% - 7.5% range.

But how are Test Rates influencing the market?

12 months ago, joint income for a couple valued at x, would potentially qualify them for a $750,000 mortgage. Today, that same income will reduce your affordability to $600,000. While a generic and simplified example, that’s $150,000 less a couple could afford in today’s market.

Interest Rates:

Market pressure will be on the way soon for many as their mortgages fixed a year ago, say at 2.19% are up for renewal. An interest rate of 2.19% increasing to around 5 to 6% poses a large additional cost.

On a $750,000 mortgage, 30yr principle & interest loan, repayments will be increasing from ~$2844pm to ~$3796, that’s an increase of $11,424 per annum.

Property investors on interest only mortgages, will have repayments increasing from ~$1369pm to ~$2807pm, an increase of $17,256 per annum or $332 per month.

The additional money is going to have to come from somewhere. It’s unlikely many employees will be getting $10,000 - $20,000 salary increase this coming year to accommodate, so reducing personal spending and expenses becomes crucial.

Additionally, investors increasing rental income by $300 per week isn’t going to be an option, there may be some recovery but not the full extent. Then take into account potential additional income tax payable by investors and they face some tough decisions ahead.

It’s a Buyer’s Market:

If you’re looking to purchase property, you’re entering a buyer’s market but with reduced borrowing power. This reduced borrowing capacity results in lower offers to purchase and with increased pressure on owners / investors to sell, this potentially means more stock and buying power. I expect to see more of this trend over the next 6 to 18 months with low-rate mortgages coming off their fixed terms prompting owners/investors to sell due to inability to afford the increased repayments.

Advice to people looking to buy:

- Keep your overheads down

- Reduce or repay debt

- Apply for a pre-approval

- Be patient and monitor the market for a deal - they’re on the way.

It can be overwhelming navigating the market on your own, especially while trying to decide what plan is most suitable to get you through the next ~18 months. We’re here to help.

If you’re unsure what this market shift means for you, get in contact with us today and let’s explore your options.

- The Lending Team -

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