News of COVID-19 infections is causing many people to panic. Some industries, such as global trade and travel, have been hit by the coronavirus pandemic – employees they might have their hours cut due to the loss of business, or worse, they might lose their jobs. Business owners fear their business might not survive.

While the world is dealing with the overwhelming health and economic impacts of COVID-19, Prosperity Finance is also working through the immediate implications for New Zealand home loans as a result of the coronavirus outbreak.

Some clients asked us: “what home loan interest rates can I expect in 2020? If the interest rates go up, I may be not able to keep paying the interest cost.” Some property investors are also wondering if 2020 is a good year to invest in the New Zealand property market.

That’s why in this week’s blog, we’ll update the current mortgage rates in New Zealand and share our forecasts regarding mortgage rates and New Zealand property market in 2020. Also, we’ll share bank’s appetite for home loans at the end of the blog.

Further implications on bank’s appetite for NZ home loans

Video Timeline

1. How are banks going to react after huge OCR cut to 0.25? 01:01

2. Is 2020 a good year to invest in New Zealand property market? 01:54

3. How does bank’s appetite for home loans affected by the COVID-19? 03:35

How are banks going to react after huge OCR cut to 0.25?

As the coronavirus pandemic spreads, New Zealand Reserve Bank announced to reduce the Official Cash Rate (OCR) from 1% to 0.25% on 16 March 2020.

What NZ home loan interest rates can I expect?

New Zealand banks are passing on the 0.75 percent of OCR cut in full for their floating rates, including revolving or offset loans.

Banks haven’t made change in terms of fixed term mortgage rates so far, such as one- or two-year fixed term rates. We predict that banks will lower their fixed term rates in the next few days, but the rates might not be reduced by as much as the 75-base point.

Generally, we expect that home loan interest rates are going to be lower in 2020.

Tips: If you worry about your income might become unstable as the result of Coronavirus panic, we suggest reducing some of your loan repayment amount when the mortgage rates cut down, so that it can help you relieve your repayment stress.

Is 2020 a good year to invest in New Zealand property market?

Since the start of 2020, we’ve been receiving many enquiries regarding applying for a home loan to buy an investment property. Compared to the same period last year, we are busier. Also, we’ve seen the house prices, from some of our clients who purchased a house recently, are much higher than their estimate market value. So, we expected that 2020 would be a growing year for New Zealand property market.

However, the situation is changing now. The global economy is facing a gravest threat since the coronavirus outbreak, which is hurting people’s confidence. As a result, some people may defer their plans on upgrading family home or buying investment properties so that they can make sure they still have money to put food on the table and support their family. So probably some people will change their mind and not consider investing in the housing market this year.

On the other hand, some investors believe 2020 is a good year for them to invest in the New Zealand property market. Here’s why:

Current interest rates are lower, which brings a higher return on property investing. This could be a better investment option than other investment strategies such as shares and bonds.

When it comes to how much you can borrow for an investment property, thanks to the lower home loan rates, your borrowing capacity goes up because you have more disposable income to service a home loan. With stronger borrowing power, some investors might be more aggressive in terms of property investing.

To sum up, 2020 will still be a lifting year in the New Zealand property market, but the growth rate may not be as fast as expected early.

How does bank’s appetite for home loans affected by the COVID-19?

New Zealand banks are tightening up your home loan applications. If you work in the industry that has been hit by the coronavirus, your bank may scrutinize your income. They are becoming a lot more conservative, which means there is no guarantee that you will have the same borrowing power as before. The following are two examples:

Client A works as a tour guide. His hourly rate has risen since last Christmas. When banks calculate how much you could borrow for a home loan, they normally would consider a permanent pay rise. But in this case, when he applied for a home loan, his bank only factor into his pervious hourly rate because the bank worried about the stability of his income given what's going on with the coronavirus.

Another similar story happened. He has been working for Air New Zealand for 25 years. Due to some cuts on international flights, his income was reduced. Banks worried about his loan servicing ability. As a result, the bank didn't approve his loan amount that they would normally do before the coronavirus.

Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.

Prosperity Finance – here to help

If you’re having trouble repaying your home loan, or you’re worrying about your plan in terms of upgrading your family home, buying an investment property, or anything related to change your property, change your loan, we’re professional mortgage broker and are here to help you. Call 09 930 8999 for a no-obligation chat with our adviser.

Read further:

Coronavirus: How to reduce my mortgage repayment pressure?

How to invest in New Zealand property market in 2020?

Does Coronavirus threaten your business? - 5 home loan tips for small business owners