Borrowers favour one-year fixed rates
Each month we invite mortgage advisors around the country to give insights into developments in the residential real estate market from their unique perspective. Our latest survey has attracted 52 responses.
The main themes to come through from the statistical and anecdotal responses include the following.
Falling test rates are making home purchasing possible for more young people.
Brokers still largely report problems with getting applications quickly processed by banks. Buyers need to allow extra time for these delays unless they go direct to their bank.
For investors the new debt to income rule limits are slowly becoming a constraint.
Compared with a month ago, are you seeing more or fewer first home buyers looking for mortgage advice?
First home buyers have been driving the housing market in New Zealand since the start of 2023 and continue to do so. A net 19% of brokers replying in our survey this month have reported seeing more young people looking to make a purchase.
Although this 19% reading is down from the peak of 52% at the start of this year it remains above the five year average of 16% and tells us that while no particular fresh flood of first home buyers is appearing in response to recent interest cuts, many are still there.
Comments on bank lending to first home buyers submitted by advisors include the following.
Seem to be very strict on the LVR focus – with anything over 80% requiring a live deal. However, reductions in assessment rates are making it a little easier for servicing.
Most open for low deposit preapproval now for main bank clients which is great. Test rate movement has also unblocked borrowing capacity and approvals are now quite in line with first home buyer priced properties in my region (BOP)
Test rates continuing to come down, first home $1m+ loans are back! DTIs may start to be the limiting factor.
Test rates dropping along with mortgage rates helping.
More favourable toward the FHB. There is a special rate of 3.99% from a couple of lenders which is very attractive. There are still the turnaround times that are creating problems.
Compared with a month ago, are you seeing more or fewer investors looking for mortgage advice?
A net 2% of brokers this month have reported seeing more investors in the marketplace looking to make a purchase. This group of buyers has undergone some strong fluctuations in buying interest over the past two and a half years with periods of strength quickly disappearing only to eventually come back again.
At the moment investor demand does not present as being on the strong side. Falling interest rates are attracting more interest – yet at the same time the borrowing ability of an increasing number is being impacted by the new debt-to-income rules and reduced equity in existing property holdings.
Comments made by advisors regarding bank lending to investors include the following.
DTI looking to become more of a factor soon.
More banks are offering 10 years interest only.
More clarity is required for the expenses such as council rates, home insurance and other expenses.
Investors are on the hunt for bargains – banks very willing to approval and advance funds easily.
DTIs are starting to become a consideration factor with the investors, and the depleting values are making it more difficult for the investors to use equities for purchase.
Compared with a month ago, are you finding lenders more or less willing to advance funds?
A quite strong net 31% of mortgage advisors have reported that banks are becoming more willing to advance funds for home purchases. This is well above the five year average for this measure of just 7% and the strongest reading since March.
In that regard it is one of a growing number of indicators telling us that greatest weakness in the economy occurred in the first half of this year (around April-May) and now things are starting to line up for superior economic and housing market growth before year-end.
What time period are most people looking at fixing their interest rate?
Following the recent easing of monetary policy by the Reserve Bank the resulting cuts in mortgage lending rates have been largest for the floating and one year fixed terms.
As a result this month a high 79% of brokers have said that the term mostly favoured for fixing by borrowers is just one year. This is up from 42% last month and just 33% two months ago. One and two year fixed rates are commonly near 4.75% compared with near 4.95% for three years.
This graph shows the changes in the proportion of agents saying people prefer fixing one year. The one-year preference has just soared.
Interest in fixing for two years has strongly declined since the 77% preference peak in April.
Customer interest in fixing three years is minimal and falling. In New Zealand borrowers chase lowest rates. They don’t back an interest rates view.
Are more property owners asking about refinancing?
A net 27% of advisors this month have said that more people are enquiring about refinancing their mortgage. This is about the same as August’s 33% and not far from the 20% five year average.
As such there seems little which we can read into this result.
