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Interest rates key to fighting house price boom

Westpac’s economists expect rising interest rates to play the biggest role in flattening house price increases.

Monday, July 12th 2021, 11:02AM

Interest rates are expected to start rising before the end of the year, when the OCR could be lifted by the Reserve Bank.

Floating mortgage rates are likely to rise once the OCR does; fixed-term rates could rise earlier in anticipation.

Acting chief economist Michael Gordon says when it comes to interest rates rising, a little is likely to go a long way.

“Average debt levels among households are higher now than they’ve been in the past, so even a small rise in mortgage rates will have a meaningful impact on household budgets.

“And just as lower mortgage rates had a powerful impact on house prices – which are up almost 30% over the last year – the same will be true in the other direction.”

While the country hasn’t had an OCR increase since 2014, there’s a more recent example that could be instructive, says Gordon.

Fixed-term mortgage rates rose between late 2016 and early 2017 in response to global interest rate trends, with the popular one and two-year rates rising by 30-40 basis points.

House price growth slowed markedly in that time, from around 15% a year in late 2016 to just 4% a year by the end of 2017. Auckland house prices even fell slightly.

Higher mortgage rates weren’t the only thing happening in the housing market at the time – loan-to-value limits were also tightened in late 2016.

But the fact house prices didn’t spring back when the LVR limits were loosened again a year later suggests interest rates will be key.

Based on the bank’s OCR forecasts over the coming years, Gordon says there is value in moving beyond the currently popular one-year fixed term, towards terms of two to three years.

Longer terms – out to five years – don’t offer additional value, although they may be suitable for borrowers who value more certainty in their repayments.

Tags: fixed rate mortgages house prices housing market interest rates OCR OCR forecasts property values

« Prices continue to rise unabatedLVRs kicking in for Auckland house prices »

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.95 3.29
ANZ 4.44 3.10 3.50 3.84
ANZ Blueprint to Build 1.68 - - -
ANZ Special - 2.50 2.90 3.24
ASB Back My Build 1.79 - - -
ASB Bank 4.45 2.55 2.95 3.29
Basecorp Finance 5.49 - - -
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - 2.55 2.95 3.25
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 4.55 3.15 3.22 3.85
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.95 - - -
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 Bank - Online 1.95 1.85 2.35 2.45
Heretaunga Building Society 4.99 3.80 3.90 -
Lender Flt 1yr 2yr 3yr
HSBC Premier 4.49 2.19 2.45 2.69
HSBC Premier LVR > 80% - - - -
HSBC Special - 2.25 - -
ICBC 3.69 2.15 2.35 2.75
Kainga Ora 4.43 2.67 2.97 3.13
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.75 3.34 3.34 4.14
Kiwibank - Offset 3.75 - - -
Kiwibank Special 3.75 2.49 2.49 3.29
Liberty 5.69 - - -
Nelson Building Society 4.95 2.99 3.24 -
Lender Flt 1yr 2yr 3yr
Pepper Essential 4.79 - - -
Resimac 3.39 2.98 2.79 3.29
SBS Bank 4.54 2.69 2.99 3.29
SBS Bank Special - 2.19 2.49 2.79
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - 2.29 - -
The Co-operative Bank - Owner Occ 4.40 2.49 2.89 3.19
The Co-operative Bank - Standard 4.40 2.99 3.39 3.69
TSB Bank 5.34 3.30 3.69 4.04
TSB Special 4.54 2.50 2.89 3.24
Wairarapa Building Society 4.99 3.55 3.49 -
Lender Flt 1yr 2yr 3yr
Westpac 4.59 3.15 3.49 3.89
Westpac - Offset 4.59 - - -
Westpac Special - 2.55 2.89 3.29
Median 4.54 2.68 2.99 3.29

Last updated: 19 July 2021 9:09am

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