What do record-low interest rates mean for NZ home buyers?

Interest rates in New Zealand have never been lower than they are right now. What’s more, experts like David Hargeaves at interest.co.nz are saying that the Official Cash Rate could drop before Christmas 2019.

The OCR could even dip below 0% during the next 18 months, driving record-low interest rates even lower.

What do low interest rates mean for home buyers and owners?

The biggest cost of owning property for most Kiwis is mortgage interest. To give you an idea of just how much interest you might pay on your home loan, let’s say you’ve just signed up a $500,000 mortgage with a 4% rate and a 30 year term. By the time you settled that loan you would have paid close to $360,000 in interest.

The lower rates are, the lower your repayments will be and the easier it is to pay your mortgage off quickly – a drop of just 0.5 percentage points could save you more than $50,000 over the life of that $500,000 loan (assuming your rate doesn’t go up again).

Since low interest rates make owning property cheaper, they tend to put upward pressure on property prices too. If rates keep dropping, this stimulus could help the Auckland market and other major markets around NZ get their mojo back.

With that said, there are some drawbacks to falling interest rates – returns on cash in term deposits and bank savings accounts will steadily decrease. Term deposits are already in the high/mid twos and savings accounts are generally well below 1%. We reckon real estate is a far better place to put your money, but we might be a little biased!

Home loan interest rates could go even lower in 2020 and beyond. 

Where are interest rates headed in future?

It’s impossible to know for sure what will happen with the OCR and consumer interest rates in the near future. What we do know is that many signs suggest that interest rates will continue falling. The Reserve Bank even hinted at the possibility in their September cash rate announcement:

“There remains scope for more fiscal and monetary stimulus, if necessary, to support the economy and maintain our inflation and employment objectives.”

Senior financial reporter at Interest.co.nz, David Hargeaves holds a similar view, forecasting another OCR cut as early as November and more through 2020:

“… 2020 may well dawn with the OCR already sitting just 50 basis points above zero. What is therefore to stop the OCR going reasonably quickly from there and into the minuses?”

Borrowing money to buy a home is cheaper than it’s ever been in New Zealand, and the experts are saying it might get even cheaper. If you’re keen to make the most of ultra-low interest rates, get in touch with the team at Golstruct Homes – let’s build your dream home together.