Mortgage rate may have possibly reached their lowest point in this cycle, fresh off the announcement from the Reserve Bank to keep the OCR on hold at 1%. The Reserve bank has backed up what the big banks have been predicting, with a recent survey reporting increased signs of rising house price expectations.

Here’s what you need to know:

Mortgage Rates Potentially at Lowest Point

According to ASB’s chief economist Nick Tuffley, it is possible that fixed mortgage rates have hit their lowest point in this cycle.

Reserve Bank’s surprise decision to keep the OCR on hold at 1% earlier in November has caused a slight rise in wholesale swap rates. ASB’s latest economic report suggests borrowers enjoyed “a perfect storm” of favourable lending conditions in the run up to last week’s Monetary Policy Statement (MPS), “The mortgage rate cuts made in October coincided with a bout of global risk aversion that dragged NZ interest rates lower as well as the local market pricing in an OCR low of 0.5%.”

Many may be holding out hope that the Reserve Bank will cut the OCR further in February, but the assistant governor Christian Hawkesby said it would take “something material” to cut the OCR, which backs up the claims that we have reached the lowest point for the foreseeable future. Mortgage rates are still at a considerably low rate, with the big four, TSB, and Kiwibank all having a 3.45% two-year offer in the market.

House Price Expectations Rising

According to a report from the Reserve Bank, there are increasing signs of rising house price expectations on the back of the recent falls in mortgage rates – something economists agree with.

The Reserve Bank’s latest household inflation expectation survey has shown a sharp rise in the expectation of house price gains, with respondents now picking 4% house price inflation over the next year, which may not seem high, but is a significant increase from three months ago when respondents in the same survey were picking only 2.8% house price inflation in a year.

Economists at both Westpac and ANZ have echoed this positive outlook, Westpac economists have been saying for some time that house price inflation is set to move to about 7% over the next year, and ANZ have recently upgraded their house price inflation expectation over the next year to 5.5%. Economist have put this renewed confidence down to accelerated house price inflation (up 3.3% y/y at the national level in October) and house sale picking up after a prolonged period of softness. These two factors combined with plateaued low mortgage rates have given economists renewed confidence in the future of the market.

ANZ chief economist Sharon Zollner said other external factors will be the make-or-break for the future of the market “policy, credit, and affordability headwinds are still expected to prevent the housing market from shooting to the moon once again, but that possibility can’t be completely ruled out.”

– Ravi Mehta, from Professional Finance Solutions