marketupdateEach quarter I participate in The Property Market’s Quarterly Update, where a panel of property industry experts contributes their views on Auckland’s residential property market.

This month’s chat was all about where interest rates are headed and just what the Reserve Bank may have planned to rein in Auckland’s raging market. So here’s my 2 cents:

  • Major changes to the market in the next 6 months

In short – while property prices are high and interest rates are low, the frenzy will continue!

Back in December I predicted that most Auckland home owners would see their property’s value rise by at least 10% over the following six months. Not even three months later and I am confident we’re on track to hit that figure.

As summer draws to a close, we usually see a slowdown in market activity nationwide however in Auckland, this year, I don’t think there’s going to be a marked decrease in sales over winter either.

With so much heat in the market, my other prediction is that the Reserve Bank will introduce some sort of macro-prudential tool that is targeted at Auckland. My pick is a higher debt servicing ratio, which basically means you’ll need more income to service every dollar you intend to borrow.

  • My advice to current borrowers

For those of us that can remember seven or so years ago, when interest rates were up at 9%, today’s rates seem ridiculously low. I’ve had a few enquiries recently from people that are keen to break their existing fixed interest rate and lock in a lower one. If you are thinking along those lines, make sure you crunch the numbers first – work out the break cost and whether it’ll be worth it. Better yet, get a good mortgage broker to do it for you – they can help you work out the true cost, and they’ll do a better job of pitching your plan to the bank.

If you do end up moving to a lower rate, don’t be tempted to spend the savings you’ll make. Instead, keep your repayments at the same level and watch your debt shrink much faster.

  • My advice to people thinking of buying

If you already own property, consider buying first and selling later. The reason I say this is that – generally – Auckland property prices are increasing so quickly that if you leave it too long to buy, you may be priced out of the market. I recently wrote a blog on that very topic – take a read.

  • Things to watch out for in the current market

The massive drop in interest rates has surprised everyone – from first home buyers to senior economists. What this proves is that no one can really predict what interest rates are going to do, so you need to be conservative in your planning and sensible in the amount you borrow.

In other words, plan for the worst case financial scenario and borrow accordingly. 

So, more of the same in terms of inflation and interest rates even, but perhaps tougher times ahead for first home buyers with a higher debt servicing ratio potentially on the cards. As with any market prediction though, the tea leaves don’t always float the way you foresee it. Next quarter’s update will be the telling sign. We’ll keep you in the loop.

Cheers,

Cam

Get a practical guide to the steps you’ll need to take to get into your first home – check out our free e-book ‘The Bank Said Yes’. You can download it here.

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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