Another major bank cuts rates! How likely is an August rate cut? This week’s key events for property investors

1

 

Major banks complete another round of mortgage rate cuts

 

New Zealand’s major banks have recently completed another round of mortgage rate cuts. ASB now offers the lowest 6-month and 5-year rates of any bank. However, rates are expected to fall further.

 

ASB’s latest rate adjustments have two notable features. First, it now offers the lowest 6-month rate of any bank, at 6.99%. Second, it is once again offering a rate below 6%, with its 5-year fixed rate at 5.99%. The last time a bank offered a fixed mortgage rate below 6% was in June 2023, when Heartland offered a 3-year fixed rate of 5.95%. Among the major banks, the last instance was Kiwibank’s one-year fixed rate of 5.85%, offered on 12 December 2022. It has therefore been some time since rates were this low.

 

The following table shows the latest mortgage rates offered by the major banks:

 

Source: www.interest.co.nz/borrowing

 

2

 

How likely is a rate cut in August?

 

Inflation figures released last week heightened market expectations that the Reserve Bank of New Zealand will cut rates this year. Some economists believe the likelihood of an Official Cash Rate (OCR) cut in August is increasing.

 

Annual consumers price index (CPI) inflation was 3.3% in the year to June, down from 4% in the first quarter and the lowest level since mid-2021. It was also below the Reserve Bank’s earlier forecast of 3.6%. However, this was mainly driven by falling prices for imported tradable goods (0.3%), rather than domestic non-tradables (5.4%). The domestic figures reflect persistent upward pressure on rents, council rates and insurance premiums.

 

So what does this mean? At present, a rate cut before the end of the year looks highly likely. The question is when. The remaining OCR decision dates are 14 August, 9 October and 27 November. Property economist Kelvin Davidson’s pick is 27 November. By then, official third-quarter CPI figures will have been released, with publication expected on 16 October, and may show inflation returning to the Reserve Bank’s 1–3% target range. To stay true to its word, the Reserve Bank will want confirmation of this before cutting rates, particularly given its continuing concerns about domestic inflation pressures. On the other hand, persistent weakness in New Zealand’s economy could force it to cut sooner.

 

3

 

Is the property sales winter still not over?

 

CoreLogic’s June property market report, released last week, showed sales volumes fell 22.1% from a year earlier, the first decline in 14 months, while stock levels rose 20%. Despite slight rate changes at ANZ and Westpac, buyer confidence has all but evaporated amid weak house prices, declining job security and persistently high mortgage rates. Kelvin Davidson said the market could pick up again once interest rates fall.

 

4

 

Opportunities remain for first-home buyers

 

What is difficult for some may be an opportunity for others. First-home buyers active in the market are taking advantage of reduced competition to secure their first properties. In the second quarter of this year, first-home buyers accounted for as much as 26% of purchases. Although buying a first home is never easy, current market conditions are helping those in a position to buy make their dreams come true. With first-home buyers already making full use of banks’ low-deposit lending allowances, the recent easing of loan-to-value ratio (LVR) rules may provide further help.

 

 

5

 

Will mortgage lending also slow?

 

This Wednesday, the Reserve Bank of New Zealand will release mortgage lending figures for June. Although lending volumes showed more momentum in May, the latest mortgage figures are also likely to weaken, given the softness already seen in June home sales. Even so, the breakdown by LVR remains a key focus. The relaxed LVR rules did not take effect until 1 July, but the change was announced on 28 May, so banks may have had some time to act in advance.

 

6

 

Does the foreign buyer ban remain a tight restriction?

 

This Thursday, Stats NZ will release second-quarter data on New Zealand home purchases and sales by people without citizenship or residence visas. With the foreign buyer ban still in place, the latest figures are almost certain to remain low, unless there has been a substantial surge in buying activity by Australians and Singaporeans.