OPINION: We Kiwis are a funny lot. We like putting the boot into authority and, whatever is delivered, we’ll generally find a reason to explain why it hasn’t been done properly.
Hoons speed down our residential street in the wee small hours and we complain that the council isn’t doing enough to deal with the problem. The council puts in speed bumps and they’re too high and make it impossible for us to drive down the street comfortably.
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A media report tells us of the struggles of a recently returned Kiwi trying to get a much needed operation and we flood talkback lines with claims that the Government lacks compassion. Auntie Jan can’t get her operation because the health system is clogged up with new arrivals who have been placed ahead of her in the queue and we’re enraged that tax-paying Kiwis aren’t getting the same priority as others. It’s almost as if we’re predisposed to take the opposite view.
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We also do it with the property market. When the market is going well we complain that rising house prices are making it too difficult for young people to get into their own home. When the property market is flat we worry that, what for many of us is, our primary source of retirement saving isn’t going to deliver the nest egg that we need to retire comfortably.
It’s an interesting trait – driven by a combination of fear, cynicism and a healthy suspicion of authority – but sometimes we allow it to create a straw man with which to frighten ourselves unnecessarily. Usually, the best examples of this are the ongoing predictions of a property market crash that simply isn’t going to happen, but currently, the biggest question I’m getting from people isn’t about whether the market will crash, but about what might happen to mortgage interest rates.
Over the past few years rates have dropped through the floor and, right on cue, we’re looking for a reason to see this as a bad thing. “Yes, rates have dropped and money is cheaper than ever – but what if they go back up?”, is the gist of the most common question that I’m getting right now.
Don’t get me wrong – I understand the question. These people are worried that they will buy a property while prices are low, and will then find themselves in a position where they can’t pay the mortgage if rates go back to where they were a few years ago. It’s a reasonable concern, but one which shouldn’t cause people to lie awake at night, worrying. Here’s why:
1. Mortgage interest rates will go back up
It’s not a case of if, but when. Interest rates are the primary tool central banks around the world use to keep inflation under control, and when our economy eventually rebounds there’s no doubt that our own Reserve Bank will start to increase them again.
2. But they’ll drop further, first
Mortgage interest rates will drop further long before there’s any prospect of them going back up. In a recent article I explained why rates will continue to drop and took a guess at how much further they might fall – but their current trajectory is clear and it’s all in one direction – down.
3. When they do start going up, it will happen very slowly
Although the drop in mortgage interest rates seems to have happened quickly, it actually didn’t. In fact, it took five years, from 2015, for those rates to drop just 2.5 percent and it can be expected to take just as long, or longer, to go up by the same amount. It’s worth noting that no central bank anywhere in the world is going to do anything to deliberately damage the economy – so when these increases do happen, it will only be at a time when households can afford it. For all of these reasons, and assuming that we have another couple of years of dropping rates ahead of us. It’s reasonable to assume that it could be at least eight or nine years before rates are back to where they were 5 years ago.
4. This means that you’ll have plenty of warning
Given the very long time frames for any increases, and the very slow rate at which they’ll increase, you’ll have plenty of time within which to respond. Over that time your personal circumstances can be expected to have improved and the value of your home will have increased significantly – meaning you’ll have choices which might include absorbing any eventual increase in rates, downsizing, or if necessary, selling your property.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at ashley@nzemail.com
