Breaking: could this bank’s new 6-month mortgage rate of 5.99% shake up the market? This week’s key developments for property investors

1

Could an ultra-low mortgage rate of 5.99% ignite the market?

 

As competition intensifies in New Zealand’s mortgage market, SBS Bank has recently ‘secretly’ introduced a special 6-month mortgage rate of 5.99%. This is almost a percentage point below other commercial banks’ advertised rates. Interestingly, however, SBS has not promoted it widely, instead offering it only to eligible customers through mortgage advisers.

 

At first glance, SBS’s offer may seem like just another marketing gimmick to attract customers. A closer look, however, suggests a carefully planned approach to the current economic environment. As is well known, even small movements in mortgage rates can have a significant effect on property market sentiment. Through its ‘secret collaboration’ with mortgage advisers, SBS Bank has avoided being inundated with ineligible applications while precisely targeting high-quality customers. The strategy does have a limitation, however: the offer is available only to new customers.

 

For homebuyers, the discounted rate represents a tangible opportunity to save money. On a mortgage of NZ$1,000,000, for example, choosing SBS’s rate could save approximately NZ$700 a month. SBS’s move could also prompt other banks to follow suit, intensifying competition in the mortgage market. Buyers should closely monitor rate movements to secure a lending opportunity that suits them. After all, as industry experts point out, borrowers have limited loyalty to banks: lower rates are the key to saving money.

 

2

Will house prices rise quickly as interest rates fall?

 

The latest CoreLogic house price survey shows that New Zealand’s national median house price fell 0.5% in August, or NZ$31,000, to NZ$811,583. This was the sixth consecutive monthly decline, bringing the total fall since the ‘mini peak’ in February to 3.7%.

 

House prices are falling across most of the country, with Auckland under particular pressure. The city’s prices fell 1% month on month in August and are down 6% since the ‘mini peak’. Hamilton prices fell 0.8% in August, while Tauranga, Dunedin and the Wellington region recorded more modest declines. Christchurch prices, meanwhile, actually rose 0.2%.

 

History tells us that even a small fall in mortgage rates can influence homebuying sentiment. A short-term recovery in house prices therefore cannot be ruled out. However, CoreLogic chief property economist Kelvin Davidson said he did not expect the housing market to enter another period of strong or sustained price growth. After all, even following recent falls, house prices are still not ‘cheap’, and plentiful listings mean buyers retain the upper hand. Debt-to-income restrictions will also begin to have an effect once mortgage rates fall to a certain level.

 

 

3

More borrowers choose short fixed terms

 

The latest Reserve Bank of New Zealand data shows that 60% of new loans in July were fixed for 12 months or less, setting a new record. Although short-term rates remain about 0.4% higher than longer-term rates, borrowers still prefer shorter terms, accepting slightly higher payments for now while waiting for rates to fall further.

 

4

Will the rental market remain weak?

 

Stats NZ will release net migration data for July this Wednesday. Another decline is expected, as departures by both New Zealand citizens and non-citizens are increasing while arrivals are falling. Meanwhile, rents are stabilising. Stats NZ will release rental data for August this Thursday, with results expected to resemble the weak figures for July, when annual growth was just 2.5%. Alongside cooling demand, the supply of available rentals is also increasing. Rental listings are currently about 25% higher than a year ago, returning to levels seen in 2021–2022. The continued completion of new homes may be one factor, while first-home buyers moving out of rentals and into their own homes is another.

 

5

More important economic data due this week

 

This week will also bring fresh indicators of economic activity, including electronic card spending data and the manufacturing PMI (Purchasing Managers’ Index) for August. These indicators have been weak recently, and a near-term rebound looks unlikely. If that proves to be the case, slowing inflation combined with weak economic data will reinforce market expectations of another interest rate cut in October.