RBNZ Survey: 58% Of Experts Say Further Mortgage Rate Changes Are To Come

A slew of banks have moved their fixed loan rates in both directions in recent weeks, yet experts believe further rate changes could still be on the cards.

In this month’s Finder RBNZ Official Cash Rate Survey, 13 experts and economists weighed in on future official cash rate (OCR) moves and other issues related to the state of New Zealand’s economy.

While all experts surveyed predict the OCR to remain at 0.25% this month, over half of those who weighed in (58%, 7/12) believe further rate changes may be announced within the coming months.

In the second half of April 2021, several banks nudged their 1-year fixed mortgage interest rate down by 0.04% and their 2-year rate by 0.1%

At the same time, some banks also increased their 3-year rate by 0.1%, 4-year rate by 0.2%, and 5-year rate by 0.4%.

Kevin McHugh, Finder’s publisher in New Zealand, said that borrowers should think strategically before switching.

“Fixed loan rates have been experiencing a lot of activity of late, mostly in response to pressures on wholesale rates.

“Although it’s tempting to switch to a rock-bottom 1-year fixed-rate, homeowners should think about whether it’s smarter to stick with a slightly higher longer-term fixed rate instead,” McHugh said.

According to Donal Curtin of Economics New Zealand, fixed loan rates are likely to rise in line with bond yields.

“Fixed loan rates reflect higher longer-term interest rates, not the OCR, and so may continue to rise if local and global bond yields keep rising,” Curtin said.

Half of the experts say the government should increase house price caps

Under the First Home Grant, first-home buyers can get $5,000 from the government to buy an existing home if they earn under $95,000 a year, while a couple can get $5,000 each if they collectively earn under $150,000.

However, there’s also a price cap on property purchases which varies based on region. For instance, existing Auckland properties are capped at $625,000, in Wellington at $550,000, and Dunedin at $425,000.

Over half of the experts who weighed in (55%, 6/11) say the government should increase price caps for first home buyers.

According to Wendy Alexander of REINZ, existing price caps are unrealistic given the current market.

“There are so few properties available to purchase below the price caps, which makes it extremely difficult for first home buyers to find properties which are eligible,” Alexander said.

Yet Robin Clements of UBS NZ disagrees, stating that the policy itself is counterproductive.

“[Increasing price caps] only fuels demand while other government or RBNZ measures are trying to cool it,” Clements said.

Property market may be starting to cool, experts say

According to the CoreLogic House Price Index, national demand for property valuations has dipped 11% compared to the previous 6 months.

Two-thirds (67%, 8/12) of panellists who weighed in believe that prices are starting to stabilise, while a quarter (25%, 3/12) say it is “too early to tell”.

According to McHugh, “A reduction in demand for property valuations can be indicative of a cooling market in that it suggests there may be less buyer activity.

“The official reimplementation of LVR requirements may also contribute to a cooling housing market,” McHugh said.

Debbie Roberts of Property Apprentice, said that interest from both first home buyers and investors alike has also waned in recent months.

“This is no surprise considering the amount of uncertainty in the market as a result of the government's announcement about tax changes, and how much of this is still yet to be clarified,” Roberts said.

Here’s what our experts had to say:

Saten Kumar, Auckland University of Technology: There is a lot of uncertainty in the markets. Covid-19 vaccine rollout is quite slow and the borders remain closed. The trans-Tasman travel yields some positive outlook but this is not sufficient. Moreover, the uncertainty surrounding the housing market is intense and may contribute to slower growth for a longer period of time.

Alfred Guender, University of Canterbury: There is no need for a policy change given the current situation and the near-term outlook. There may be a blip in annual inflation at the moment in view of prices rising in a few sectors now but a fall in prices 12 months ago. But this should not be interpreted as heralding sustained future inflation. There is still a great deal of uncertainty about the overall near-term outlook which suggests a continuation of the current policy stance.

Debbie Roberts, Property Apprentice: The RBNZ will want to keep interest rates low to continue to stimulate the economy for a while longer yet. They are likely to continue with a "wait and see" policy regarding any further changes to the housing market, as the effect of the LVR restrictions and the government's announcement regarding tax changes, will only start to show signs in the statistics from next month onward (as bank pre-approvals from January 2021 will be starting to expire, and some settlements from properties purchased prior to the Government announcement regarding tax changes will also still be pending).

Sharon Zollner, ANZ: The RBNZ will look ] through the near-term inflation spike but the economy is in better shape than they thought.

Robin Clements, UBS NZ Ltd: Take this long before RBNZ is confident that it is 'sustainably achieving' its inflation/employment objectives.

Mark J. Holmes, University of Waikato: It's not clear on the extent to which the New Zealand housing market might be cooling down. There are forthcoming budgetary impacts on the economy to weigh up. Borders are closed and there is the ongoing slow rollout of the COVID-19 vaccine, but perhaps some encouraging travel bubble effects. There are signs that US inflation has been picking up lately.

Ashley Church, ashleychurch.com: The next move will be up - but the timing of that move is uncertain.

Michael Reddell, Croaking Cassandra: The economy has been recovering more strongly, and inflation expectations have risen somewhat. Nevertheless, it isn't clear what would prompt an increase in the next 18 months or so, as the global situation remains unsettled and fiscal restraint starts to cut in. At present, however, it finally seems more likely that the next move will - eventually - be an increase rather than a further cut.

Wendy Alexander, REINZ: The effects of recent government policy will take some time to have an impact on the market, so it is our view the Reserve Bank will hold on any OCR decisions until they can see what the impact has been.

Kelvin Davidson, CoreLogic: It reflects an assumption that borders will be open by then and "normal" service will have resumed.

Jarrod Kerr, Kiwibank: The economic data has clearly improved, and much faster than anticipated. But there is still slack in the labour market and wage growth is subdued. Policy needs to remain accommodative into next year.

Donal Curtin, Economics New Zealand Ltd: Stronger recovery from Covid than expected, meaning the prospect of inflation sustainably at 2% and of employment nearer maximum level is now closer than before.

Christina Leung, NZIER: The RBNZ has indicated it wants to be confident the NZ recovery is well on track before it starts to lift interest rates – the path of least regret.

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