An issue that cannot be ignored: could refixing at higher interest rates continue to affect the property market? Five things to watch this week

Figures released by the Reserve Bank of New Zealand last week show that, among new loans issued by lenders, the proportion fixed for one to two years rose again, while the share fixed for more than two years declined.

In June this year, 46% of lending was fixed for two years or less, while loans fixed for 2–3 years accounted for just 16% of total lending. The figures shifted further in July, with their respective market shares reaching 50% and 12%. Recent increases in fixed mortgage rates have prompted some borrowers to opt for shorter fixed terms again, reducing their risk of overpaying if interest rates fall over the next few years. Another fact that cannot be ignored is that, with many household budgets currently under pressure, many borrowers can only choose the fixed term offering the lowest rate currently available.

Looser loan-to-value restrictions have a significant impact on lending

The latest lending figures suggest that, since 1 June, the easing of loan-to-value restrictions to 35% has given investors previously shut out by the minimum 40% deposit requirement a reason to return to the property market. The proportion of lending to property investors rose from 1% in May to 23% in July. However, this additional lending is likely to reflect investors increasing their borrowing or switching banks, rather than buying more properties. There is reason to believe that, as interest rates fall, lower rates will have a more positive effect on the market.

Refixing at higher rates is an issue that cannot be ignored

For many households with mortgages, the biggest challenge is that 53% of their lending must be repriced within the next 12 months, at rates much higher than before. So far, major banks have maintained low levels of mortgage arrears and bad debt, as low unemployment has helped people adjust to higher debt servicing costs. However, this could still dampen property market activity for some time, as borrowers facing higher repayments are unable to consider moving to a larger home.

The migration surge is easing but remains historically high

Stats NZ will release net migration figures for July this Tuesday. Figures from recent months show that the migration surge has eased as departures increase and growth in arrivals slows. However, the figures remain historically high: net migration in June was 5000 people, compared with a historical average of around 2500. There is reason to believe the figures due this week will be broadly similar. Clearly, high net migration will generate substantial demand in the local property market, which will be reflected in sales volumes and prices.

Will rent increases accelerate again?

Stats NZ will release national rental market figures for August this Wednesday. As housing demand increases, including from the rising net migration mentioned above, rent increases have also begun accelerating across much of the country over recent months. For example, rents in July were up 4.1% on a year earlier, the fastest annual growth since June last year. With rent taking an increasing share of tenants’ incomes, there appears to be some limit to further increases over the long term. For now, however, the rental market looks set to enter another period of faster rent growth.

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Source material: OneRoof