Investor mortgage borrowers’ sentiment takes a nose dive

Property investor mortgage borrowers are worried interest rates will rise this year, and this cycle of the market won’t result in firm house price increases.

Despite REINZ data showing house prices edging up slowly, property investors appear disbelieving, the latest Crockers/Tony Alexander survey shows.

The latest QV House Price Index released yesterday shows residential property values edged upwards by an average of 0.1% in the December quarter, with the average home now worth $902,414, but this is 0.3% less than the start of last year and 15.2% below the market peak in 2021.

House prices were relatively static last year and are likely to stay that way for some time, QV says.

And although red tape around lending rules has been loosened, interest rate declines mean investors can borrow more and mortgage interest deductibility will be fully restored from April 1, mortgaged investors are still not convinced the market is going in the right direction for them to make more purchases.

Concerns about interest rates increasing this year have risen among them and Alexander says this appears logical considering inflation risks and the declining scope for much additional easing of monetary policy by the RBNZ. 

He says New Zealand businesses intentions to push up prices whenever they can and monetary policy easings in Australia and the US will restrict New Zealand’s policy easing. 

Other economists say the New Zealand dollar and the inflation risks associated with it could push up the cost of imported goods, such as petrol, which will be an important area for the RBNZ’s policy stance.

ASB senior economist Mark Smith says while another one per cent cut to the OCR by the RBNZ should be on the cards in a 0.50% tranche in February and 0.25% cuts in April and May, monetary policy settings beyond that look highly conditional on the economic outlook, which is uncertain.

It is a view mainly shared by ANZ senior economist Miles Workman who says the RBNZ working to its central assumption the neutral OCR is about 3%, a higher imported goods inflation outlook for 2025 than previously thought is unlikely to take a 50bp cut next month off the table, but a recalibration to domestic inflation could mean the RBNZ reassesses how low the OCR eventually goes this year.

ANZ retains its forecast of the OCR falling to 3.5 percent this year.

Meanwhile mortgaged property investors say worries about council rates rises are top of their minds, while concerns about insurance have plateaued.

Alexander says it will be interesting to see if insurance worries decline now that some advisers are indicating increases driven by offshore reassessments of New Zealand risk appear to have ended. “Then again, the California wildfires will have some reinsurance cost impact over 2025-26.”