The Reserve Bank has raised the official spot rate (OCR) to 2.5 percent and has promised more hikes until inflation is under control.
But what does it mean for people trying to buy their first home?
First Home Buyers’ Club Director Lesley Harris told RNZ’s Checkpoint program tonight would show how much of an impact it would have on first-time homebuyers.
“Just because official spot interest rates have risen doesn’t necessarily mean interest rates will rise right away, but we do predict interest rates will rise a little more — but historically, they’re still relatively low.”
The banks were stress-testing at 6.7 and 7.7 percent, and if interest rates rose it meant less money in people’s pockets for things like food and transportation, Harris said.
It was really hard to get a mortgage deposit together for first-time homebuyers, she said.
“It’s very difficult for first-time homebuyers, especially for people who are coming into the housing market and trying to face that deposit.
“We hear things like it takes about 11.8 years for an average person to save for that down payment and a huge number of first-time home buyers actually rely on Mom and Dad’s bank – which we now know is the fifth largest lender in New Zealand.” Zealand, even before Kiwibank.
“Which is great for those who have access to a mom and dad’s couch — but unfortunately not everyone has that.”
There was a huge difference between people’s incomes and what they could afford to borrow versus what they needed to get a mortgage, Harris said.
And some banks turned away people with high deposits from parents.
“The bank will see that you want to save. In general, they will have to see that you have saved a large part of that investment yourself.
“We saw one recently — parents made the full down payment and the kids had an income of about $300,000. They were turned down because they couldn’t show they had saved much of that down payment.
“Which doesn’t make much sense for bank security, but that’s just one of the rules banks have.
“It can be quite frustrating because many people, if they have a security deposit and are used to paying rent, can actually pay the mortgage.”
There was still a lot of work to be done and obstacles had to be reconsidered, she said.
House prices fall
House price growth continued to slow down, fewer homes were being sold and it took longer to sell, new data shows.
Property sales were down 38 percent from a year ago, 43 percent in Auckland.
One of the positives in the market at the moment was that there were far fewer properties being auctioned, Harris said.
“The clearance rate is a lot lower than it used to be, say a year ago. So with a fixed price, or by negotiation, a first-time homebuyer clearly doesn’t have another home to sell, so they can start negotiating really hard and get a good deal. “
That was a plus for first-time homebuyers, she said.
“We want to stick with all the positives we can — and that’s one for sure.”