Buying a New Home During a Time of High Interest Rates

As we head into 2022, we are heading into a world dealing with the financial, social and international impacts of Covid-19. Homeowners need to be prepared for higher mortgage interest rates and, in fact, the signs have been around for a while. The latest RBNZ data shows that many with a mortgage have made an adjustment, taking out interest rate contracts with longer terms and fixed rate interest instead. There is no question that the property market has been heavily impacted by the pandemic in New Zealand and, as a new home buyer, you may want to prepare yourself for what this could mean for you. The experts at Mortgage Masters are always happy to help, so feel free to contact our team with any questions regarding ever-fluctuating interest rates. 

How Interest Rates Affect the Housing Market

During 2022, a whopping $151 billion is exposed to rate rises this year and that is only for owner-occupiers. Property investors have another $60.2 billion exposed to rate rises. Another $3.9 billion is exposed in mortgages which were taken out to support business loans. That means that $215 billion in total will be rolled over in 2022 at sharply higher interest rates. Those that do roll over their mortgages could follow the growing trend of taking out longer term rate contracts, with fixed term rates. 2021 started with 73% of household fixed mortgages due to be rolled over in the year, but ended with just under 60%.

What Happens to Housing Prices?

Home loans will continue to become more expensive over 2022, but the good news from economists is that due to the already sharp increases of 2021, the worst has already been and gone. At the beginning of 2021, the average 2-year mortgage rate for new borrowers was 3.49% according to data by Reserve Bank. By November, that had risen to 4.65%. The truth of the matter is, that since the beginning of the pandemic in 2020, house prices in major cities and metro areas skyrockets to over 22%. By staying positive however, we know that this is beginning to deescalate.

What are the Factors a New Home Buyer Should Consider When Opting for a Housing Loan?

When interest rates are high, opting for a home loan can be scary. The rates on offer are no longer at record lows and have already risen by about 2%. So, the drive to lock in current rates won’t be so much as seizing on an unusual benefit, it will be fear-based for the majority, as some try to avoid a larger hit to the household budget. If you’re a first home buyer considering pre-approval for a home, we recommend speaking to a professional who understands these high interest rates and how they affect you.

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