New Zealand is experiencing one of the lowest levels of interest its ever seen. With the OCR currently sitting at 1% this represents the lowest interest rate ever seen in the country! This might be bad news for your savings, but it's excellent news when looking to buy a property.
The first thing to point out is that the OCR national interest rate isn't the mortgage interest rate. The Reserve Bank of New Zealand controls the official cash rate (OCR) and manages this cash rate to try and control things like inflation and economy stimulation.
Keeping the rate of inflation (the amount things increase over time) between 1% and 3% is the Reserve Bank's goal and this OCR is reviewed 7 times a year to see if it needs adjusting to control the rate of inflation. Poor controls can result in a country's economy experiencing hyperinflation, which is where the money you earn is no longer worth as much when you go to buy things. This happened in Zimbabwe several years ago where a loaf of bread cost 200% more in a relatively short space of time.
Inflation aside, the OCR sets a benchmark for lenders as well. So when the OCR was reduced to 1% the banks amended their own interest rates. For mortgages this meant another decrease on some already very low interest rates.
According to mortgagerates.co.nz taken at the time of publishing, the current crop of mortgage interest rates for fixed rates up to 3 years looks a little like this:
- ANZ Special- 3.99%
- ASB Special - 3.89%
- BNZ Special - 3.99%
- China Construction Bank Special - 3.19%
- TSB Special - 4.05%
- HSBC Special - 3.35%
So for 3 years, a mortgage on the above rate will only earn around 4% in interest. That's a massive saving when compared to 2014 where market interest rates sat close to 5.6%! And spare a thought for those people who were getting a mortgage back in 2008 where 3 years fixed-rate mortgages were over 9%.
The challenge for many people is that house prices are also higher than normal. Back in 2008 for example, the average house price was $340,000, compare that to 2019 and the average is closer to $680,000.
Economic experts within the government have noted this challenge and have tried to make it easier for people to get on the housing ladder even if they can't save the 20% deposit typically required (who has $136,000 lying around anyway?). They've eased restrictions on the amount of people banks can lend to who only have deposits of 10% or less (called the LVR or Loan to Value Ratio). Current regulations restricting the banks mean they can only have 20% of their new lending (new mortgages) where the borrower has less than a 20% deposit.
If you want to buy a home, but don't have a 20% deposit then all is not lost.
Depending on your income levels, financial circumstances, other assets and financial history you may still have a mortgage approved if you go to the right bank at the right time. Our friendly Stephanie Murray Mortgage advisors are in regular contact with many different banks and have a good understanding as to which banks may have the capacity to accept applications where the applicant does not have the full 20% deposit.
With interests rates the lowest they've ever been now is the best time to talk to a Stephanie Murray Mortgage broker to see if you could be buying your own home sooner than you think.