OCR drop good news for investors

The huge 1% cut in the official cash rate (OCR) on Thursday is great news for investors and the general housing market.

Friday, October 24th 2008, 2:01PM

by The Landlord

Bayleys general manager David Poole says interest rate cuts following the Reserve Bank’s 1% OCR cut will make it easier for home owners to borrow or refinance.

He says it will also make property investment a more attractive option – “at a time when sharemarkets and fixed rate deposits with banks are not looking as attractive.

“Lowering the rate will be positive for the property market across the board by making funding more affordable,” says Poole.

John Ross of the Professionals Lower Hutt says it’s investors and first home buyers that should feel the biggest impact of the cuts. He says after about a two-year lull, they’re now out there. “And they’ll be further encouraged as there’s lots of stock looking quite cheap now.

“Now it appears there will be cheaper long-term debt servicing costs. It makes sense investors have to be attracted to them, especially if the fixed rates come down. If they can lock in for three to five-year low rates investors will jump at them.”

Ray White’s CEO Carey Smith says it must add to confidence for people making buying decisions. “When interest rates come down, generally property prices start to stabilise. It’s a good sign,” he says.

Smith says the rate drop is very significant for every current mortgage holder who is considering refinancing over the next three years.

“For some borrowers, their repayments have suddenly restructured. They can get a higher lending ratio to purchase a property. Home affordability has just become better.”

Smith points out that around 70% of mortgage borrowers are locked into fixed rates. However, the rate drop will have an affect in rolling terms.

The big question says Smith is how much further the rate will drop on December 4 when the Reserve Bank makes its next announcement.

ASB Chief Economist Nick Tuffley is not expecting the next fall to be as big as this one. He says, though the fall in the OCR is positive for real estate, New Zealand can still expect a lot of gloomy headlines going forward.

“We’ve got to be realistic, there’s still downward pressure on housing prices heading into next year. Some areas will do better than others. But certainly home buyers’ debt servicing costs are more attractive.”

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