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| Updated: October 2010 |
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| The Reserve Bank kept the Official Cash Rate on hold at 3.50% at its latest review on 16 September and has announced that it now plans to lift the OCR at a more moderate pace than previously foreshadowed. |
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| Floating Rates: As the OCR is a significant influence on floating mortgage rates, the more moderate rise foreshadowed is good news for floating mortgage holders. Current RBNZ intentions around OCR hikes would see floating mortgage rates rise by about 1.5 percentage points over the next two years. However, bear in mind that plans can change. If the economy exceeds the RBNZ’s expectations, floating mortgage rates could rise more rapidly. |
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| Fixed Rates: Fixed mortgage rates have fallen sharply, due in part to the RBNZ’s change of heart and in part to easing international interest rates. The two and three year rates currently on offer are below long term averages and may present a good opportunity to lock in below-average mortgage rates. |
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| It’s fair to say that the New Zealand housing market is sagging. House sales have drooped to recession-era lows, while house prices are falling slowly but steadily. A side-effect of the October 1 income tax cuts will be to reduce the tax advantage associated with property investment, which could dull the market tone for years. The other anticipated side effect of tax changes is higher rents – we are already observing a faster pace of rent increases, even as house prices fall. |
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| There is a glimmer of positive news on the horizon for house prices. The tempered outlook for mortgage rates, combined with slightly higher migration to NZ could breathe life into the market over summer. |
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| The Canterbury earthquake wrought extensive damage to properties in Christchurch and the surrounding areas. Faced with a massive reconstruction task, the construction industry will have to divert resources to Canterbury to cope. This will put upward pressure on the cost of constructing houses – most noticeably in the South Island, but some effect may be apparent across the whole country. There could be a consequent temporary lift in the price of new and near-new homes. Finally, house prices and rents in Christchurch are likely to rise temporarily as displaced locals seek new accommodation and reconstruction workers relocate to the quake-hit Garden City. |
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| The economy is continuing to recover steadily from recession, albeit in an uneven fashion. New Zealand’s exporting industries are performing well, and employment is back on an upward trend. However, local consumers have been decidedly unenthusiastic. Consumer confidence has fallen, the rate of house building has remained surprisingly low, and businesses appear reluctant to invest. |
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| All forecasts given in this document are made in good faith and are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts. Each individual’s particular circumstances should be discussed with their financial advisor. All opinions, statements and analysis expressed are based on information current at the time of writing from sources which Westpac believes to be authentic and reliable and may change from time to time. Westpac issues no invitation to anyone to rely on this material and intends by this statement to exclude liability for any such opinion, statement, analysis or any loss suffered as a result. The content of this material is for information purposes only and should not be relied upon without first seeking independent legal, financial and/or tax advice. |
