OCR hike a blow for home buyers

Days after the Budget 2022 announcement, the Reserve Bank hiked up the OCR to 2%, putting another obstacle in front of prospective home buyers.

The rise in the OCR was in response to New Zealand’s high inflation economy as well as greater economic uncertainty overseas. The Reserve Bank has indicated that further increases are expected.

Yet for house buyers, a higher OCR means higher interest rates for mortgages. For a market already experiencing a decline in prospective buyers, it proves another barrier to entry.

‘‘What it actually means is people have to plan to take future interest rate rises in their stride’’ said REINZ ambassador for Palmerston North Andy Stewart.

‘‘I think it will put pressure on people, especially if you put that together with recent rates increases and the cost of living increases for essentials.’’

Stewart said prices in the market were still showing a downward trend and despite higher lending criteria, he thought the recent Budget would help them into the market. But he also admitted there would be pain for some.

‘‘There will be some who go into negative equity, but hopefully it won’t be too many. My worry would be if we see people whose mortgage payments raise more than they budget for and that could result in more mortgagee sales.

‘‘But hopefully we don’t see too much of that.’’

Before Parliament’s Finance and Expenditure select committee, Orr remained steadfast in his decision to raise the OCR, telling committee members that ‘‘given the nature and scale of the economic shocks we have come through, I am positively surprised how well we have come through this activity’’.

Property Brokers Palmerston North branch manager David Klue said that despite these factors, Palmerston North’s market was still doing relatively well.

‘‘It’s another challenge at the end of the day. If you’re on the market, it’s introduced another slow down until we get a flat base again

‘‘The truth is we do get these blips in the market, so it really is a case of weighing up all the different factors because rents are also going up. So for many people, getting on the market is still the best bet long term.’’

For sellers, the current conditions compound difficulties they have been facing since the start of the year. That is, fewer buyers in the market means houses stay on sale for much longer than they have in the past.

Encouraging those borderline buyers put off by rising interest rates driven by the high OCR would be the long-term challenge for the real estate industry, particularly if the OCR continued to rise as the Reserve Bank had projected.

And with Labour’s recent Budget removing the price purchase cap for the First Home Grants and First Home Loans scheme, it could mitigate buyer hesitancy during these uncertain times.

What the Reserve Bank’s indicated OCR hikes over the future means buyers, now more than ever, can’t just plan for the mortgage repayments and interest rates they get given on day one.

They have to plan for the increases. What impact that has on the market going forward remains to be seen.