Now, looking back at New Zealand and Auckland in particular, we now know that the Reserve Bank of New Zealand has cut interest rates to record low. The magnitude of the recent cuts is also of great interest – with the last cut of 50 basis points occurring in the Global Financial Crisis. Obviously, no one is saying that we are in the middle of the GFC or anything remotely like that time.
Such interest rate cuts could boost buyers’ confidence, and thereby enticing them back into the market and start making offers, and may likely put an end to the ‘wait-and-see’ mood in the market. However, it may very well not have a huge impact at all, especially at the lower price range of the market since the difference in weekly mortgage payment is likely to be a couple of dollars. The spring housing market is therefore a close one to watch, especially when banks start competing for market share in the spring housing market and offer truly enticing rate cuts. So if you are thinking about negotiating your interest rates, perhaps hold on your horses till September.
But it’s important to know that interest rate cuts are only one piece of the puzzle. The banks’ serviceability tests are the more critical (and often neglected) reason for the housing market’s slowdown.
For the uninitiated, when banks assess mortgage applications, they use qualifying/assessment rates which can be considerably higher than the actual rates being paid (rather than assessing servicing off the actual interest rates that are being advertised) to make sure that you can afford to service the mortgage.
Therefore if such qualifying/assessment rates do not change, the actual interest rate reductions do not benefit potential buyers (other than those who already have a mortgage or are pre-qualified) who cannot qualify for such loans in the first place. Industry insiders are certainly expecting the New Zealand banks to change such qualifying rates. If that happens, expect the housing market to start sizzling like the turn of the weather into summer.