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Sub-2% mortgages to boost house prices: ASB

Home loan rates will plummet to 2% in the next year, with low rates set to push up house prices, according to ASB.

Wednesday, August 26th 2020, 3:57PM 3 Comments

The bank's latest mortgage rate forecast predicts that within 12 months, home loan rates on one and two year fixed terms will drop to about 1.5%.

The expectation of low rates comes as the Reserve Bank signals plans for a term lending facility to banks, and warms to the idea of a negative official cash rate. The measures are likely to push home loans down below existing record lows.

The Reserve Bank measures are likely to be introduced as the Covid-19 pandemic causes upheaval in the economy.

Negative rates will only affect wholesale markets, and there is no prospect of retail rates going negative. Banks will remain under pressure to keep term deposits in positive territory, and will face squeezed margins. 

The second lockdown in Auckland has prompted ASB to predict a fall of roughly 1% across fixed rate terms. In a year's time, five year rates could be as low as 2.5%, according to the bank's analysis. 

The bank believes low rates will boost the housing market over the next year.

It has revised down its prediction of a 6% drop in house prices. The bank now expects house prices to fall 2.8% by March. 

The lender's economists, including Mike Jones, predict a home lending boom, with banks lowering credit hurdles alongside the rate cuts.

"Falling mortgage rates provide powerful stimulus to the housing market," Jones said. "This seems to be especially so now that structural, or long-run, mortgage rate assumptions are being revised lower. For example, banks are bringing down the hurdle rates that they test prospective borrowers’ income against."

"RBNZ data also show that over 50% of mortgages are due to re-price onto lower rates over the coming 12 months. Accordingly, stimulus for house prices from this source will continue to flow for most of 2021," the report adds.

Tags: ASB home loans house prices Lending Mortgage Rates mortgages RBNZ Reserve Bank

« Negative OCR would be a mistake: Kiwibank Borrowing boom in July – before second lockdown »

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Comments from our readers

On 27 August 2020 at 10:31 am Veteran Charles said:
This is a sincere question......at what point does it become uneconomic for banks to lend? Would they not need to be paying term deposit investors a negative interest rate for the home lending rate to come down to 1.5%? It makes no sense to me, unless I am missing something.
On 27 August 2020 at 10:33 am Andy the adviser said:
It doesn't matter how low the interest rates go the banks have tightened their criteria so much that they are missing out on good deals.

Is this because they are worried about their asset ratio requirements? If depositors withdraw all their money, banks will be outside RBNZ criteria. The RBNZ loan referred to above is simply creative accounting, and the beginning of a banking implosion.

I believe a serious rethink in monetary policy and a new economic model is needed to get us through. Following other countries (in a race to the bottom) is not the answer.

Instead of basing an economy on growth reliance, we should be looking at sustainability and self-sufficiency. We have the perfect opportunity now that the boarders are (sort of) closed.
On 28 August 2020 at 10:11 am PropertyBanker said:
Andy - Completely agree, Banks are being tougher.. I believe the biggest problem is that they continue to adopt a much higher hurdle rate in their servicing calculations. To do this, they would be acknowledging that there has been a structural shift in the average interest rate for the foreseeable future and they don't appear ready to do that.

It must be pretty difficult to run a Bank when on the one hand you have pressure to reduce rates and help the economy but then on the other hand the Reserve Bank has all but assure that they will have to comply with a much tougher regime with respect to capital reserves.. particularly for commercial property and agricultural property. The government needs to get their agenda aligned. We weather the GFC better than almost every country in the world while on the existing capital holding requirements so I can't see why they are so set on making our Banks even safer at the risk of causing our economy to die a slow but sure death!

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 3.09 3.25 3.39
ANZ Special - 2.49 2.69 2.79
ASB Bank 4.45 2.49 2.59 2.65
Bluestone 3.49 ▼3.34 ▼2.99 ▼3.34
BNZ - Classic - 2.49 2.69 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.09 3.29 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online 2.50 1.99 2.35 2.45
Heretaunga Building Society 4.99 3.50 3.40 -
HSBC Premier 4.49 2.25 2.35 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.45 2.45 2.65
Kainga Ora 4.43 2.93 3.07 3.24
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 3.30 3.50 3.50
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.65 2.65
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
Lender Flt 1yr 2yr 3yr
SBS Bank 4.54 2.99 ▼3.09 ▼3.15
SBS Bank Special - 2.49 ▼2.59 ▼2.65
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - - - -
The Co-operative Bank - Owner Occ 4.40 2.49 2.69 2.79
The Co-operative Bank - Standard 4.40 2.99 3.19 3.29
TSB Bank 5.34 3.29 3.29 3.59
TSB Special 4.54 2.49 2.49 2.79
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.09 3.29 3.39
Westpac - Offset 4.59 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 2.49 2.69 2.79
Median 4.54 2.95 2.99 2.97

Last updated: 1 December 2020 10:07am

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