Navigating the Financial Waters: Recent Drops in NZ Interest Rates, Inflation Figures, and Future Predictions

The New Zealand banking landscape is abuzz with significant movements this July, bringing positive news regarding interest rates and inflation, though house sales and prices are less encouraging. Several major banks have announced notable drops in their interest rates, with all major banks cutting fixed rates for terms ranging from six months to five years. This comes on the heels of fresh inflation figures that paint a more optimistic picture for the country’s economic future. Let’s dive into the key highlights and explore what they could mean for you.

Interest Rates Take a Dive

In a bid to stimulate borrowing and spending, New Zealand banks have collectively reduced their interest rates. Leading institutions like ANZ and Westpac have slashed their mortgage rates, followed closely by BNZ and ASB. This move aims to make home loans more affordable and accessible, providing welcome relief for many potential homeowners and existing mortgage holders.

The reductions in interest rates are part of a broader strategy to support the economy amidst global uncertainties. Lower interest rates not only make mortgages cheaper but also encourage businesses to invest and expand, fuelling economic growth.

Attractive Offers from Banks on Refinance and First Home Loans

In July, the best offer for refinancing a home loan was 6.72% for one year with a 0.9% cashback on 20% or more deposit/equity deals. For first home buyers with a 10% deposit, the best offers available were 7.60% for one year (including a 0.75% low equity margin) with a 0.9% cashback from one bank, and 7.45% for one year along with a $5K cashback from another bank. We expect these interest rates and cashback offers to become more competitive as we head into spring, with more specials likely to be announced around September 2024.

Property Market Down and Listings Up

According to the Real Estate Institute of New Zealand (REINZ), the total number of properties sold in New Zealand decreased by 25.6% year-on-year, from 5,854 to 4,356, and by 32.6% compared to May 2024, from 6,461 to 4,356.

At the end of June, the national inventory level had increased by 28.6% (+7,069) from 24,676 to 31,745 year-on-year. Agents are noticing more listings coming onto the market due to high interest rates, cost of living pressures, changing employment situations, more people moving permanently overseas, and the bright-line test for investors changing to two years from July 1st. The median time to sell a property in July was between 47-49 days nationally.

OCR Cut Coming Sooner Than Later

Inflation figures released in July show inflation now around 3.3%, just outside the target band of 1-3% desired by the Reserve Bank. Almost all banks are now predicting an OCR cut to happen this October or November 2024, further fueling the hope that interest rates may come down further before the end of this year. Key dates to watch for OCR announcements are October 9th and November 27th, 2024. Given the promising outlook for interest rate cuts, a six-month fixed rate may be beneficial in the coming months to align existing loans with the next round of rate drops.

Construction Industry Costs Are Down

According to the latest Cordell Construction Costs Index (CCCI), the cost to build a standard three-bedroom, two-bathroom brick and tile house fell by 1.1% from April to June 2024—the first drop in the last 12 years. The annual growth rate in construction costs is now around 2%. The downturn in workloads in the construction sector, resulting in more spare capacity, is now flowing through to reduced building costs. Construction industry has slowed sharply in recent months, and building materials costs have flattened out too. Products such as steel, general hardware, kitchen joinery, tapware, other bathroom accessories, and electrical light fixtures have also seen cost reductions. This is great news for households considering a new building project or looking to buy straight from a developer. Lending rules also favour new builds, with both loan-to-value and debt-to-income restrictions exempting mortgages used for house construction.

Seizing Opportunities

While there are more homes available on the market, high borrowing costs and economic uncertainty are keeping many potential buyers on the sidelines, leading to slower sales and more frequent price reductions. The recent drops in interest rates by New Zealand banks, coupled with promising inflation figures, signal a period of economic adjustment and opportunity. Staying informed and proactive in your financial decisions will be key to making the most of these changes.

In summary, while the property market faces some challenges, the recent interest rate cuts and positive inflation outlook present new possibilities and optimism. Embrace these exciting times and navigate your financial journey with confidence in consultation with Global Finance Team!

The information and articles published are true to the best of the Global Finance Services Ltd knowledge. Since the information provided in this blog is of general nature and is not intended to be personalized financial advice. We encourage you to seek Financial advice which is personalized depending on your needs, goals, and circumstances before making any financial decision. No person or persons who rely directly or indirectly upon information contained in this article may hold Global Financial Services Ltd or its employees liable.