Sub-2% mortgages to boost house prices: ASB
Home loan rates will plummet to 2% in the next year, with low rates set to push up house prices, according to ASB.
Wednesday, August 26th 2020, 3:57PM 
3 Comments
The bank's latest mortgage rate forecast predicts that within 12 months, home loan rates on one and two year fixed terms will drop to about 1.5%.
The expectation of low rates comes as the Reserve Bank signals plans for a term lending facility to banks, and warms to the idea of a negative official cash rate. The measures are likely to push home loans down below existing record lows.
The Reserve Bank measures are likely to be introduced as the Covid-19 pandemic causes upheaval in the economy.
Negative rates will only affect wholesale markets, and there is no prospect of retail rates going negative. Banks will remain under pressure to keep term deposits in positive territory, and will face squeezed margins.
The second lockdown in Auckland has prompted ASB to predict a fall of roughly 1% across fixed rate terms. In a year's time, five year rates could be as low as 2.5%, according to the bank's analysis.
The bank believes low rates will boost the housing market over the next year.
It has revised down its prediction of a 6% drop in house prices. The bank now expects house prices to fall 2.8% by March.
The lender's economists, including Mike Jones, predict a home lending boom, with banks lowering credit hurdles alongside the rate cuts.
"Falling mortgage rates provide powerful stimulus to the housing market," Jones said. "This seems to be especially so now that structural, or long-run, mortgage rate assumptions are being revised lower. For example, banks are bringing down the hurdle rates that they test prospective borrowers’ income against."
"RBNZ data also show that over 50% of mortgages are due to re-price onto lower rates over the coming 12 months. Accordingly, stimulus for house prices from this source will continue to flow for most of 2021," the report adds.
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Comments from our readers
Is this because they are worried about their asset ratio requirements? If depositors withdraw all their money, banks will be outside RBNZ criteria. The RBNZ loan referred to above is simply creative accounting, and the beginning of a banking implosion.
I believe a serious rethink in monetary policy and a new economic model is needed to get us through. Following other countries (in a race to the bottom) is not the answer.
Instead of basing an economy on growth reliance, we should be looking at sustainability and self-sufficiency. We have the perfect opportunity now that the boarders are (sort of) closed.
It must be pretty difficult to run a Bank when on the one hand you have pressure to reduce rates and help the economy but then on the other hand the Reserve Bank has all but assure that they will have to comply with a much tougher regime with respect to capital reserves.. particularly for commercial property and agricultural property. The government needs to get their agenda aligned. We weather the GFC better than almost every country in the world while on the existing capital holding requirements so I can't see why they are so set on making our Banks even safer at the risk of causing our economy to die a slow but sure death!
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