After a busy start to 2020, as the impact of coronavirus continues to unfold, economists say the property market is likely to slow down in the foreseeable future. In the meantime, the Reserve Bank has cut the official cash rate (OCR) to just 0.25 per cent, and mortgage rates are following suit.
Check out our housing market update for the latest news and insights.
To counteract the coronavirus’ economic effects, on 16 March, the Reserve Bank cut the OCR by 75 basis points to just 0.25 per cent – the lowest level since the rate was introduced in 1999.
In announcing the cut, the RBNZ pointed out that the COVID-19 virus is affecting global trade, travel, business and consumer spending, with a significant impact on the New Zealand economy. However, the statement also acknowledges that “several factors will continue to assist and support economic activity”, including a sound financial system and well-capitalised financial institutions.
By decision of the Monetary Policy Committee, the OCR will remain at 0.25 per cent for at least 12 months.
Following the announcement, most lenders have immediately passed on the full cut to their floating-rate customers, and some are reviewing their fixed rates as well.
If your budget allows you to keep repayments at the same level, lower interest rates can give you an opportunity to focus on repaying their mortgage faster. If your floating rate has just dropped or your fixed rate is due to expire soon, please give us a call: we are here to help you choose the right mortgage structure for your financial needs.
Also, if you have any concerns regarding the affordability of your mortgage repayments, please don’t hesitate to contact us. As CoreLogic’s senior economist Kelvin Davidson pointed out in his recent analysis, the unemployment rate is currently very low at 4 per cent, but it may rise in the next few months, potentially creating some mortgage repayment issues.
Should that be the case, please make sure you contact us as soon as possible. We can help you liaise with your lender to request a hardship variation. Keep in mind that the process for this request depends on your home loan value, so it’s important to talk to the lender to get clarity on your options.
Both CoreLogic and the Real Estate Institute of New Zealand have issued notes stressing that, while a significant recession is likely, there are reasons not to be too pessimistic about the outlook.
So, how will the property market be affected? CoreLogic’s Davidson said there are both positive and negative elements at work. On the positive side, he mentioned the historical resilience of the NZ property market to most shocks, the support provided by lower-than-ever interest rates, and the newly-announced $12 billion fiscal injection with wage subsidy. Plus, Davidson added, “a key support for property will also be the perception of many New Zealanders that it’s a relatively safe asset class.”
On a less positive note, though, Davidson says that this recession is likely to be serious, and the property market is probably set to slow due to buyers and vendors taking a cautious approach.
CoreLogic’s analysis echoes the note that REINZ released on 18 March: “As a general rule, house prices tend to either hold or have a slight dip and volumes tend to fall as people take that wait and see approach.”
However, according to REINZ chief executive Bindi Norwell, the expectations aren’t entirely pessimistic: “The reality is that people always need to buy and sell houses – people might be moving for a new job or upsizing for family reasons, so we don’t expect the market to come to a complete stop.”
As economists and industry experts pointed out, it’s too early to assess the economic impact of coronavirus. What we can do is watch the situation closely and help you make well-informed decisions about your home loan.
If you need guidance and advice on how to structure your mortgage, or have any questions about your circumstances, please get in touch.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
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