The Reserve Bank (RBNZ) has cut the official cash rate (OCR) from 1.75% to 1.5% and signalled another drop by late this year. It seems likely that at least some of this will pass through to lower mortgage rates. Either way, it’s a great time to be a borrower, CoreLogic Senior Property Economist Kelvin Davidson comments
Today’s decision had pretty much shaped up as a 50/50 call, especially given the uncertainty associated with it being the first under the new Monetary Policy Committee structure. In the event, the risks of inflation undershooting the target and the labour market softening were deemed to be too large to ignore, and accordingly the official cash rate was cut by 0.25%. This was the first move since a 0.25% cut in November 2016.
The outcome today follows hot on the heels of yesterday’s Reserve Bank of Australia (RBA) decision to hold their cash rate unchanged at 1.5%. Although they didn’t move rates, the attached RBA statement certainly left the door open for a cut over the coming months. A number of other central banks around the world are also striking a cautious tone at present, but haven’t actually moved yet. So in this regard, the early-moving RBNZ may get biggest bang for their buck.
For the property market, it’s pretty much one-way traffic. Competition amongst the banks is already strong, ‘rate wars’ are frequent, and a lower-for-longer official cash rate also bodes well for mortgage rates over the next 1-2 years at least. In this environment, borrowers are sitting pretty. Property sales volumes and prices should hold up relatively well (albeit not booming), especially since the prospect of capital gains tax has now been taken off the table.
Everybody still needs to be mindful, however, of the probable requirement that banks hold more capital on their balance sheets in future. The RBNZ’s consultation on the proposal ends next Friday (17th) and a final decision is expected sometime between July and September. It seems likely that the proposal will be introduced in some shape or form, and could push up mortgage rates by as much as 1%-point.
For now, however, today’s OCR cut means it’s still business as usual for the residential property market. Admittedly, there are headwinds (e.g. tax ring-fence for rental property losses, Foreign Buyer Ban), but the market generally still looks to have a solid foundation.