Mortgage interest rates are set to stay low for the foreseeable future but I think they are very much now at their lowest point. A further reduction in the OCR might trigger a 6 month or 1 year special of 3.95% but that would be a fairly short term promotional type offer. Inflation is unlikely to come back into the market anytime soon so the only force that could push interest rates up is increasing risk aversion.
NZ and Australia are commodity based economies with weak commodities markets. Iron ore, oil and diary prices have all collapsed. Meanwhile China looks like it is slowing down. If there was a major market correction, and let’s face it there was almost one triggered last month with the Chinese share market, then bank funding costs would increase and that would result in higher mortgage rates. Not that much higher than we currently have, but higher nonetheless.
Rather than get too greedy, my view is to lock in low rates now for as long as you can. A 3-year rate around 4.50%-4.70% is looking very attractive. I wouldn’t get caught up on the short term specials. The Auckland housing market is slowing and I think that’s a good thing. Prices couldn’t keep going up at 20% per year. It has become harder for investors to purchase now that they need 30% equity.
The Chinese market has slowed down with the new rules requiring IRD numbers, the two-year bright line test, as well as tighter controls on getting money out of China. House prices will stabilise, but may fall in South Auckland and West Auckland principally due to the new LVR restriction on investors. Having said that, long term we still aren’t building fast enough for a growing population, so any decline will be temporary.