Rising Inflation, Higher Interest Rates & Opportunities For Buyers

The NZ consumer price index rose to 7.3 per cent in the June 2022 quarter, the main drivers being housing and household utilities with rising construction and higher rental costs pushing up prices.

Other contributing factors include ongoing global supply chain disruptions and high transport costs, along with a sharp increase in operating costs for businesses in New Zealand – such as the higher wages required to retain and attract staff.

In August 2022, the Reserve Bank of New Zealand (RBNZ) raised the Official Cash Rate (OCR) to 3 per cent in a bid to tighten monetary policy and maintain price stability. Tasked with curbing inflation and bringing it back to acceptable levels – around the 1 to 3 per cent range – the RBNZ may continue lifting the OCR to a level where it is confident consumer price inflation will settle within the target range.

Fixed interest rates trending downwards

Despite being restricted in how much lending they can do because of loan-to-value restrictions (LVR), lenders are still competing fiercely for market share.

After some sharp increases in mortgage costs over the past year, there’s been a flurry of fixed interest rate reductions in the first few weeks of August 2022, as lenders respond to competitive pressures.

A number of lenders have also come out strongly with cashback offers as an incentive to borrowers to take out new loans. This comes off the back of Reserve Bank figures showing mortgage lending has plummeted compared to the same time a year ago.

Impact on house and commercial prices

Tighter lending criteria and rising interest rates continue to impact house prices and sales activity in the second quarter of 2022, with properties staying on the market longer according to data and insights from the Real Estate Institute of New Zealand (REINZ).

Aside from some regional differences, house prices are expected to decrease as mortgage rates rise, prompting buyers to look out for opportunities to get into the market sooner rather than later. For first property buyers previously locked-out of the market, this may be the first chance to own a property.

Financial advice is key

Rising interest rates impact a financial plan in several ways. For property owners with a mortgage, higher interest rates reduce cashflow and limit the ability to add to retirement savings or investments. For investors, higher inflation and interest rates bring uncertainty about future prices and costs, but also some opportunities.

Sound financial and budgeting advice is critical in times of uncertainty, and can help buyers weather the challenging times. There’s never been a more important time to seek advice from a financial adviser.

Disclaimer: The views and opinions expressed in this article are intended to be of a general nature and do not constitute financial advice for an individual client. You should seek professional advice before taking any action in relation to the matters dealt within this article. Although care is taken to ensure accuracy of the information contained in this article, Mortgage Express Limited, or Harcourts Group Limited or any of their related entities do not accept any responsibility or liability for any loss or damage whatsoever which may directly or indirectly result to anyone from taking or not taking actions from reading this article.