People are starting to move their settlement dates forward or negotiate shorter settlements when buying property in order to lock in interest rates as they fear they will continue to rise even higher.
Two of the major banks – ANZ and Westpac - have already increased their interest rates by at least half a percent this week and other lenders are expected to follow suit.
Ongoing interest rates rises are causing angst among buyers who are not only worried that they will have to fix their mortgages at an even higher rate, but that their pre-approvals may also drop.
The length of time banks allowed customers to rate lock varies with ASB allowing up to 35 days after the contract goes unconditional and BNZ, Westpac and ANZ give up to 60 days. KiwiBank allow 45 days, but customers can pay to add on an extra 30 days.
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Ray White salesperson Dan Lavender recently helped a buyer move their settlement date forward as they wanted to lock in a lower interest rate while it was still in the 5% range instead of 6%.
In this particular case, he said it suited both the buyer and the seller who was also able to settle earlier on their new property.
EasyStreet mortgage adviser Gareth Veale also had clients this week request a 60-day settlement instead of the proposed 90-day settlement in the sales and purchase agreement because they wanted to lock in the lower interest rate now.
However, Veale said because most settlements occur within 60 days they would only need to be brought forward if for example they were rented and the tenants needed to be given 90 days' notice or if the buyer was using a bank that had a shorter rate locking requirement.
EasyStreet mortgage adviser Gareth Veale: “Interest rates are not going down.” Photo / Supplied
“It is something to be mindful of and making sure that you are with a bank that you can lock a rate out as late as possible because interest rates are not going down.”
While Veale hasn’t seen any other examples yet of people bringing settlement dates forward, he said people are really anxious about how high interest rates could go.
As well as the rising interest rates, people are also trying to buy before their pre-approvals for lending expires and the banks tell them they can’t borrow as much under the new stress testing rates.
“We might have started conversations six months ago and I was like this is what you can afford then and now I’ve had to give them the reality check. Back then they could afford a $700,000 to $750,000 mortgage now maybe $600,000 – they've just lost so much affordability.”
Mi Team financial adviser Gene Andrews hasn’t had any clients request earlier settlements yet, but can see why in a few certain situations it may happen.
His advice to customers is to lock in the rate as soon as the property goes unconditional because the chance of interest rates increasing at the moment is very high.
“If for instance you had a customer at one of the other banks (that haven’t increased their rates this week) and they are going unconditional, you will be then trying to lock them in knowing that the rates are likely to go up,” he said.
“Now with an increasing rate market you’ve got to get in quick and get locked in and structure it slightly different.”
Andrews said it often comes down to individual circumstances, but in some situations bringing the settlement forward could definitely be an option if it was beneficial on everybody’s part.
However, he can’t see it being a huge issue because most settlements are happening within 30 to 60 days especially with bridging finance being non-existence so customers are not able to buy a house and put in a longer settlement date to give them time to sell theirs.
“You are always going to have the anomalies that sit outside that so there might be the odd case where people do bring them forward.”
Andrews said if the buyer is working with a mortgage adviser, then they will be able to recommend the best bank for them and that may include choosing one that offers a longer rate locking period.
