Has New Zealand entered a cycle of rising mortgage rates? How should savvy small and medium-sized investors respond?

The New Zealand Herald recently reported that all four of New Zealand's major banks had confirmed they would raise mortgage rates. ASB moved first, increasing its one-year fixed mortgage rate by 36 basis points, from 2.19% to 2.55%. Its two-year rate also rose by 36 basis points, from 2.59% to 2.95%. Its 5-year rate increased by 30 basis points, from 3.69% to 3.99%. ANZ then announced an increase of 31 basis points in its one-year rate to 2.5%, 31 basis points in its two-year rate to 2.9%, and 25 basis points in its three-year rate to 3.24%. BNZ has raised its one-year rate by 36 basis points to 2.55%, its two-year rate by 40 basis points to 2.95%, and its three-year rate by 26 basis points to 3.25%. Westpac's one-year rate rose by 36 basis points to 2.55%, its two-year rate by 30 basis points to 2.89%, and its three-year rate by 30 basis points to 3.29%.

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This sudden market shift came in the same week as the release of New Zealand's household essentials inflation figures for the June quarter. The 3.3% increase was the largest in nearly a decade! Rising interest rates and inflation have a significant impact on homeowners,  

“For example, a 0.36 percentage point increase in the two-year rate means that a recent buyer repaying an NZ$800,000 mortgage over 30 years would pay an extra NZ$1824 a year, or NZ$152 a month.” 

Many people have exclaimed that New Zealand's property market is about to change dramatically! Without low interest rates to keep operating costs down, are property projects still worth local investors flocking to?

 To explore these questions, YIJU New Zealand interviewed Bernard Leung, a well-known, experienced investor in New Zealand's property sector. With more than twenty years of property investment experience, countless property viewings and his own distinctive insights into locations, homes and the industry, what fresh perspectives does he have to offer?

 

Q1: How do you interpret the recent round of mortgage rate increases by all four major New Zealand banks?

Bernard Leung: Personally, I think this is a test of market pressure by several banks after obtaining the Reserve Bank of New Zealand's approval to raise interest rates. But it is worth explaining that mortgage rate increases and the Official Cash Rate, or OCR, are different things. Once retail banks have permission to raise rates “legitimately”, their increases seem reasonable even if the central bank does not actually raise the OCR, because most people have already accepted that expectation. However, people have overlooked one issue: mortgage rates have risen even though the OCR has not. Through this “clever manoeuvre”, banks can earn greater profits from wider interest margins. Will the major retail banks still want the central bank to raise the OCR? On the other hand, if mortgage rates can rise without an OCR adjustment, will the central bank still need to raise the OCR in future?

Q2：What is your forecast for local bank interest rates over the coming period?

Bernard Leung: That is a good question. I have recently discussed this privately with quite a few mortgage brokers. Although the news is full of reports that the era of low interest rates is over and that the government is getting serious about tackling high house prices, no one can predict future interest rate movements. Take the coordinated increases by the four major banks: Kiwibank went in the opposite direction, announcing a 6 basis point cut to its two-year fixed mortgage rate, bringing it to 2.49%. Similarly, several other banks with relatively small market shares, including Chinese banks here, have not increased their mortgage rates. With market conditions and the outlook still unclear, I am personally keeping cash on hand and waiting. It is more prudent to avoid rushing into any major investment decision.

Q3: Indeed, banks have recently told us that enquiries about term deposits have increased significantly. What advice do you have for potential property investors waiting on the sidelines?

Bernard Leung: Well, although rising interest rates will hit homeowners, term deposit rates will also rise, so small and medium-sized investors with a medium to large sum of readily available cash could consider a high-interest on-call account. This is particularly suitable for developers and builders who have funds set aside for land or building materials but cannot predict when they will need them because of market uncertainty, and feel it would be wasteful to leave the money in a non-interest-bearing account.

 

ICBC New Zealand recently launched Smart Saver, a convenient, intelligent savings product that is well suited to the needs of small and medium-sized investors. It can help us manage cash effectively, with flexible and convenient scheduled transfer functions. Specifically, Smart Saver's intelligence is reflected in two features: 

 

01

The first is a “retained balance transfer”. Based on the balance you specify, the system transfers idle funds above that amount from your linked account into your Smart Saver deposit account, earning you more interest at a higher rate.

02

The second is an “automatic scheduled transfer”. Based on the amount and frequency you specify, the system transfers idle funds from your linked account into your Smart Saver account to earn higher interest. This arrangement can be cancelled at any time, and funds can be deposited or withdrawn whenever needed. I have prepared a chart comparing similar financial products available in New Zealand, and Smart Saver's intelligent features, value and convenience are clear.

It is worth mentioning that ICBC's high-interest on-call account currently pays 0.6%, far above comparable accounts at other banks. This rate will be adjusted as appropriate in line with policy. The savings product is suitable for all investors, as well as those of us in the property industry. As ICBC New Zealand's first intelligent deposit product, it offers smarter features and better value than comparable products on the market.

 

YIJU New Zealand reminds readers that special conditions may apply to this financial product. For enquiries, please contact:

Phone: 09 3747266

Email: operation@nz.icbc.com.cn

 

Disclaimer:

(1) The services above are subject to ICBC New Zealand's service and credit terms.

(2) The interest rates above may change at any time without prior notice.

(3) This information is for general reference only and should not be regarded as financial advice. If you need assistance, please contact your financial or legal adviser.

The views above are personal opinions provided for reference only. Neither YIJU New Zealand nor ICBC New Zealand accepts any liability.