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Highs And Lows

Mortgage rates look to have reached their peak, writes Kris Pedersen. But it’s not certain whether property prices have bottomed out.

By: Kris Pedersen

2 July 2023

It appears that the mortgage interest rates have reached their peak, as indicated by the Reserve Bank of New Zealand, our primary regulatory authority responsible for controlling interest rates through managing inflation. While it is not certain whether property prices have hit rock bottom, the current trend of interest rates stabilising, coupled with very strong migration data, presents numerous opportunities for those in a position to explore them.

Recently, I had the pleasure of participating in a webinar featuring a chief economist from a prominent bank. He suggested that property prices are nearing their lowest point and expressed hope that the substantial increase in the official cash rate (OCR) (525 basis points or 5.25 per cent since the rate hikes began) and the speed at which these increases occurred would prevent the need for further rate hikes.

Consequently, it is an opportune time to make a decisive call. In the event of a change in government, the property market appears increasingly favourable.

Inflation Data

For borrowers, it is crucial to pay close attention to inflation data. The pivotal figure will be released on July 19. The reason why further interest rate increases are not being discussed currently is due to the lower-than-expected inflation numbers for the March quarter (actual 6.7 per cent versus a predicted 7.2 per cent).

While the majority of media attention will likely be focused on the cash rate review on August 16, I recommend everyone prioritise the inflation statistics five weeks earlier, as they will be the primary determinant of whether interest rates have reached their peak or if inflation still poses a significant threat.

The Reserve Bank conducts a quarterly survey of expectations, gauging predictions on future interest rate trends. The most recent survey revealed that businesses anticipate inflation to be within the Reserve Bank’s target range (1-3 per cent) within the next two years.

Should the data continue to move in this favourable direction, we may unfortunately witness more negative stories concerning business failures and job losses.

Hsbc Implications

A final point of note for any readers who may have debt with HSBC. Although it is massive globally, it is a minnow in the New Zealand market and has decided to largely shut down its retail banking operations.

Borrowers whose fixed-rate mortgages expire prior to September 13 will be able to fix their rates one last time for a maximum of six months. When that term expires, and for those whose rates come off after that date, they will move onto a variable rate, which at present is much more expensive than the floating rates on offer. As HSBC themselves suggest, “start engaging with other financial service providers.”

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