Is a Short, Sharp Correction on the Property Cards?
New Zealand’s overheated property market has shattered record after record in the past year, with house prices skyrocketing by close to 30 per cent in 12 months alone. But is a short, sharp correction on the property cards? Nathan Miglani, Mortgage Adviser with Loan Market Paramount fills us in.
The average national house price has soared to a massive $937,000 according to property analytics firm CoreLogic – a 31 per cent increase over the year to July. The largest increase on record. But is there a tipping point in sight? I’m of the mindset that yes, there will be a short, sharp correction on the property cards, but I don’t think rates will go as high as 7 or 8 per cent as it will be simply unaffordable for a lot of people.
There are a number of factors influencing the state of play.
The Official Cash Rate (OCR) increased to 0.75 per cent in November (2021) and the banks reacted quickly, raising interest rates too high too fast. Just three or four months ago, if you were borrowing with a 10 per cent deposit, you would have been looking at interest rates of between 2.69 to 2.99 per cent. Now you’re looking at 4.25 to 4.9 per cent if you’re lucky to get an approval and we could see interest rates in the mid 5 per cent range by the end of 2022.
We’ve also got the new tax rules coming in, which mean you can no longer deduct loan interest as an expense on older rental properties. This will lower the returns many landlords can earn from their rentals.
We’ve also seen a tightening of lending criteria following the Reserve Bank’s latest loan-to-value ratios officially coming into force. So, it genuinely feels like the property market is going to get a lot slower and will change from a seller’s market to a buyer’s market very soon.
Skilled labour shortages are also having a significant impact. We recently helped a developer secure finance for eight townhouses which were supposed to be completed in August 2021 but labour shortages have delayed the project by three months, increasing the cost by $20,000.
But there is still positive news – banks are still offering good rates if you’re looking at building a new home or buying a property off the plans. Those rates are floating in the early 2 per cent range, but as such can go up without notice.
Looking across the Tasman, around 70 per cent of Australians are on a floating rate, as opposed to 80 per cent of New Zealanders opting for a fixed rate. With floating rates currently sitting below fixed options we may start to see Kiwis following the Aussies.
I believe as much now as I ever have, that Christchurch is in a fortunate position as we remain the most affordable of the six main centres.
If you have plans in the pipeline to buy, invest or even build, it’s more critical than ever before that you get professional advice, so you can understand how best to structure your finance and to ensure that your lending is manageable, no matter what the interest rates do.
Years of experience mean Nathan Miglani knows how to give you the best possible chance of success if you are thinking of buying or building a property. Whether it’s a first home, next home, rental or a development, Nathan and his team are passionate about helping you through the process and they’ll find the best deal for your unique circumstances.
