Looking for Light
Expect high interest rates to stay for some months yet, but there is light at the end of the tunnel as inflation comes under control,says Mortgage Adviser and Owner of Loan Market Paramount, Nathan Miglani.
We have started 2023 with the same high interest rates that were biting through the second half of 2022 and I’m sorry to say that it’s likely they’ll be with us for some time yet. But don’t despair, as high interest rates won’t last forever.
The government has been using the Official Cash Rate as a tool to fight inflation, which – to put it simply – is the rising cost of goods and services. Since late 2021, as we started to come out of the era of Covid lockdowns, disrupted global supply chains and low unemployment have been pushing prices up. And that’s what the government is trying to tackle with higher interest rates. The strategy is slowly starting to work, however, with a slowdown of consumer spending.
As spending slows, the risk of inflation reduces – and the need for a higher OCR diminishes. My hope is that by winter, we should see interest rates starting to stabilise and as 2023 draws to a close, we should see them starting to fall. It’s election year too, which will add further impetus for the government to start easing off the OCR.
As it is, first-time mortgage borrowers are being squeezed between high interest rates and limitations on the amount banks are able to lend on low-deposit loans. The saving grace in recent months has been Kāinga Ora, with policy changes early in 2022 making it possible for more first-home buyers than ever before to purchase a property with just 5 per cent deposit. A new policy announced in late 2022 is a further boon for first-home buyers. The Shared Equity Scheme allows first-home buyers to borrow up to $200,000 interest-free for 15 years for use as a deposit. This incredible new scheme will be a game-changer for those struggling to save a deposit.
Meanwhile the investment market remains quiet. On the whole, investors are biding their time – in a lot of cases, the numbers are simply not making sense right now, so many are taking a step back from expanding their portfolios. But … if you have some decent equity built up in your family home, the current market could present opportunities to purchase at a very good price.
And remember, if you are building a brand-new investment property, you will benefit from interest deductibility and a five-year bright-line period (as opposed to the 10-year period for existing properties). There is also the possibility that the bright-line period might reduce further in the coming years.
Those selling their family homes and buying again, whether upsizing, downsizing or moving into school zones, remain active. If they’ve owned their home for a few years, they will have enjoyed good capital gains, allowing them the freedom to purchase again with a healthy deposit.
The past year has seen a market that has impacted on buyers in a range of ways, but a stabilisation of interest rates – when it happens – will be welcomed across the board!
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.
