Mortgage relief at last! But the real pressure is only beginning: is New Zealand’s housing market entering an era of high ownership costs?

Over the past two days, two major New Zealand banks have adjusted their mortgage rates in succession, putting a pause on the rising interest rate expectations of recent weeks.

First, ANZ reversed its decision earlier this month to raise fixed mortgage rates, cutting rates on several products, including its one-year, two-year and three-year fixed terms, while also lowering some term deposit rates. BNZ then announced fixed mortgage rate adjustments of its own, taking a different approach: modest increases in short-term fixed rates and reductions in three- to five-year fixed rates, aiming to strengthen its competitiveness across different loan terms.

The successive moves by the two largest commercial banks are no coincidence. They reflect a shift in the market’s assessment of the future direction of interest rates.

For many households preparing to borrow or approaching a mortgage refix, this is undoubtedly a positive signal. However, it does not mean owning a home has become easier. Mortgage pressure may be easing, but another, longer-term and harder-to-avoid cost is gradually becoming a new factor influencing New Zealand’s housing market.

Why have mortgage rates suddenly hit the brakes?

Just a few weeks ago, many market observers were still concerned that the Reserve Bank of New Zealand (RBNZ) might raise the Official Cash Rate (OCR) again in July, and several banks had begun lifting fixed mortgage rates.

Developments overseas, however, have changed market expectations.

Independent economist Tony Alexander says easing tensions in the Middle East and falling international oil prices have significantly reduced the risk, previously feared by markets, of energy prices driving inflation higher. Petrol prices have already begun falling. If this trend continues, New Zealand’s short-term inflation pressures could ease further. Expectations of another OCR increase in July have therefore cooled markedly, with a decision now more likely to be deferred until September.

Meanwhile, wholesale swap rates have also fallen in recent weeks, reducing pressure on banks to keep raising fixed mortgage rates.

This provides important context for ANZ’s decision to reverse its earlier increases and adjust its mortgage products again.

For borrowers, this is undoubtedly among the most positive recent developments. At least in the short term, the risk of further sharp increases in fixed mortgage rates is less immediate than it was a few weeks ago.

Banks resume competing

Although ANZ and BNZ have taken different approaches, their adjustments send the same signal: competition in the mortgage market is heating up again.

ANZ has reversed some of its earlier rate increases to restore its products’ competitiveness. BNZ has adopted a strategy of raising short-term rates and lowering longer-term rates, repositioning across loan terms to attract borrowers with different needs.

This means competition among major banks for mortgage customers is likely to intensify further over the coming period.

For households preparing to apply for a loan or approaching a refix, shopping around is more important than ever.

However, some easing of mortgage pressure does not mean the cost of owning a home is beginning to fall.

Another change taking place in New Zealand’s housing market deserves close attention.

Less mortgage pressure does not mean cheaper home ownership

If high interest rates have been the defining theme of New Zealand’s housing market in recent years, high ownership costs may deserve greater attention in the years ahead.

More households are finding that their biggest monthly pressures no longer come solely from bank loans.

In recent years, many councils have continued raising council rates to meet infrastructure, public service and spending requirements. At the same time, home insurance, electricity, water, repairs and maintenance costs have all continued to increase.

For existing homeowners, even if mortgage rates stabilise, the pressure of overall monthly spending may not fall significantly.

OneRoof recently reported on an 80-year-old retiree living in Waihi. She said she lives mainly on her pension and saves money by eating simple meals such as soup and porridge. Food, insurance, electricity, petrol and continually rising council rates are making everyday life increasingly difficult to afford. She admitted she had considered leaving Waihi, but the value of her home would not allow her to move to most areas, unless she relocated to somewhere with lower house prices, such as the far south of the South Island or the West Coast. At 80, she also finds the prospect of starting again frightening.

This is not an isolated case. As council rates in many areas rise year after year, more households on fixed incomes, particularly retirees, are facing growing cash flow pressure.

The housing market’s focus is changing

Over the past few years, mortgage rates, deposits and borrowing capacity have dominated market discussions.

Now, more buyers are starting to calculate another long-term bill: how much they will need to pay each year in council rates, insurance, utilities and maintenance once they own a home.

Several experts interviewed believe there is no fundamental problem with New Zealand’s current council rating system, but that better support mechanisms are needed for households on fixed incomes.

The Ratepayers Assistance Scheme currently under discussion aims to let eligible homeowners defer council rates payments until they sell their homes, easing short-term cash flow pressure.

Meanwhile, some economists have suggested further improving local government infrastructure funding mechanisms so new developments bear more of the costs of growth, rather than leaving existing ratepayers to carry most of the burden.

These discussions all show that the factors influencing the housing market are changing.

What does this mean for the housing market?

For first-home buyers, reduced upward pressure on mortgage rates undoubtedly offers some breathing room.

But housing affordability now depends on more than how much a bank is willing to lend. It also includes the ownership costs that keep increasing each year.

For buyers looking to upgrade, a more stable lending environment can help restore confidence in moving home. However, council rates, insurance and other long-term expenses must also be included in their budgets.

Investors, meanwhile, will need to look beyond financing costs and pay greater attention to rising operating costs throughout the ownership period, and whether rent increases can absorb them.

Overall, the recent successive mortgage rate adjustments by ANZ and BNZ send a positive signal to the market and reflect changing expectations for the short-term direction of interest rates.

However, this does not mean New Zealand’s housing market has entered a period of relief across the board.

If financing costs have been the biggest challenge for New Zealand’s housing market over the past three years, ownership costs may deserve greater attention in the years ahead. Mortgage rates may be offering some breathing room, but for a growing number of households, the calculation that needs revisiting is not just the monthly mortgage payment. It is also the rising long-term costs that come with owning a home.

Perhaps New Zealand’s housing market is entering an era of high ownership costs.