1. Chances of another OCR hike have increased (but only slightly)
The Reserve Bank left the Official Cash Rate (OCR) at 5.5% last week, but also indicated there was a slightly increased chance of a further rise, or at least delays to the first cut (from late 2024 to now 2025). However, I tend to interpret this as a reminder the RBNZ is still concerned about high inflation rather than a clear signal that it actually intends to raise the OCR again. Indeed, in some ways, the tweaks to the OCR projection seem to have been more about technical modelling of where the “neutral” level lies, rather than an explicit change of mind about the eventual peak.
Certainly, the RBNZ already thinks the economy will be pulled back into a recession this year, and recent falls in dairy prices as well as the lagged impacts of previous monetary policy tightening (e.g. there are still lots of people that have still to reset their fixed mortgages to current interest rates) just confirm that forecast. In turn, that should dampen inflation significantly, and will prevent the need for any further OCR increases.
In a nutshell, then, I think we can still generally say that mortgage rates have stopped increasing (more or less), but also that they won’t fall anytime soon either.
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2. First home buyers are still a key force
New CoreLogic data shows that first home buyers accounted for 26% of property purchases in July, matching the record high achieved in June. The non-financial benefits of home-ownership (e.g. stability of tenure) evidently remain a strong factor for first home buyers, but other influences such as First Home Grants, First Home Loans, the ability to use KiwiSaver for a deposit (or at least part of it), and the recent easing in the loan to value ratio rules will all have been important too.
Mortgaged multiple property owners, which includes investors, are still relatively quiet, accounting for 21% of purchases last month. However, with the election now less than two months away, there’s no doubt some would-be investors are standing by, ready to dip back into the market if National wins and then follows through on its promise to bring back mortgage interest deductions for existing properties.
3. Net migration eases, but not much
Last week’s Stats NZ figures reported a monthly net migration inflow (arrivals minus departures) of around 5,000 people, the lowest figure for eight months, but still enough to lift the 12-month rolling total to almost 87,000. That’s the second highest figure on record, boosting overall population growth and demand for property. This is probably flowing into rental pressures more than prices, at least for a start. But either way, it’s still a key factor in bringing the recent downturn to an end.
CoreLogic chief economist Kelvin Davidson says mortgage rates are unlikely to fall anytime soon. Photo / Peter Meecham
4. Any debt to income ratio restrictions won’t bite immediately
Last week’s Reserve Bank data showed that lending at a high debt to income ratio remains muted – if you set the bar at seven, only 9% of investor loans in June were above that mark, and only 1% of first home buyer loans. The drop-off in high DTI lending over the past couple of years is due to higher incomes, lower house prices, reduced risk appetite from both banks and borrowers, as well as higher mortgage rates – i.e. with rates up, a borrower simply can’t service as much debt as before.
Given that high DTI lending has already come down, the potential new rules from March/April next year aren’t about this cycle anyway; it’s more about preventing a repeat of the post-Covid boom when mortgage rates do eventually drop back again, by tying long run house price growth more closely to incomes, and limiting how many properties anybody can own over the medium term.
5. Scope for low deposit lending to rise?
Looking ahead, it’s lighter for new data this week, with only the Reserve Bank’s latest mortgage lending figures (for July) set to be released, on Thursday at 3pm. The overall lending flows – across new loans, top-ups, and bank switches – could well have remained fairly subdued last month, but my focus will mostly be on the breakdown by loan to value ratio. In particular, will more owner-occupiers enter with less than a 20% deposit? In June, the share was only about 6%, well below the allowance (speed limit) of 15%. Of course, there’s a natural limit here to how much it could rise, given that a low deposit simply means a larger loan, not ideal when mortgage rates are about 7%.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
