Housing market fuelled by OCR cuts ‒ but mortgage application times also rising

Thursday, 28 November 2024

Adrian Orr explains the decision to lower the official cash rate by 50 basis points to 4.25%. He discusses easing inflation and a subdued economy, but with a recovery expected by 2025. The Bank remains prepared to respond to future shocks.

Interest rates are falling following the Reserve Bank’s official cash rate cut, likely fuelling property demand at the exact time mortgage application times are blowing out.

The Reserve Bank announced it would be cutting 50 basis points off the OCR to take it to 4.25% on Wednesday.

Banks, including ASB, BNZ and Kiwibank, responded by lowering floating interest rates. ASB said it was dropping its servicing test rate for home loans to 7.60% from Monday.

While the OCR cut was expected, property commentators welcomed it as a boost for the housing market.

CoreLogic chief property economist Kelvin Davidson said it was good news for mortgage borrowers who had stayed floating or fixed short in anticipation of further interest rate drops.

The clear guidance about further OCR cuts might give confidence to owner occupiers looking to relocate, alongside already decent activity from first home buyers and early return of investors, he said.

The Reserve Bank’s OCR cut is expected to boost the housing market.

“Indeed, history suggests that the falls in mortgage rates we’ve already seen could bring the recent downturn in property values to an end pretty soon.

“But that doesn’t necessarily mean a sharp upturn will start straight away either.”

An “overhang” of listings, rising unemployment, and the prospect of the debt-to-income ratio rules becoming more of a factor suggested any upturn next year could stay fairly muted, Davidson said.

Ray White real estate chief executive Daniel Coulson said following the last OCR cut, his agency saw a 30.2% increase in sales for the month of October when compared with 2023.

“We have seen a significant lift in activity across the market ‒ from prospective buyers as well as homeowners who are seeking to take advantage of renewed energy in the housing market.”

It was expected a high volume of new listings would hit the market early next year, offering choice to buyers and competition for would-be sellers.

“Many will reflect upon the same high level of listing that emerged in early 2023 which saw the supply/demand dynamic tip in favour of the buyer.

There was a significant lift in market activity after the Reserve Bank’s last OCR cut, Ray White’s Daniel Coulson says.

“The difference as we approach the holiday period this year, and it is a big difference, is the cost of borrowing.”

New Zealanders are already feeling increasingly positive about the housing market, according to ASB’s latest housing confidence survey.

It showed that house price expectations have lifted, while over half of respondents expect interest rates to fall, and 20% think now is a good time to buy, up from 8% in July.

ASB senior economist Kim Mundy said the market was poised to pick up, although it might take some time before that translated into a pronounced upswing in house prices.

But the rate cuts, and change in sentiment, come at a time when mortgage advisers are complaining about application processing times, and problems getting pre-approvals.

Economist Tony Alexander surveys advisers regularly and respondents to his latest survey reported the time it was taking for most banks to process their applications had blown out to an average of 10 days.

They also said options for pre-approvals were limited. Last week ASB said it would not accept pre-approvals from advisers with clients who were not ASB customers until January 10 next year.

Mortgage Supply Company director David Windler said with more than 60% of home loans now going through advisers, the situation was an issue.

Across the board, bank turnaround times had lengthened out through adviser channels, and there were times an application could take longer than 10 days, he said.

“There is no doubt the banks have not resourced their broker units well enough for this situation to be avoided.”

Banks were working pretty hard to bring service level expectations back into line, and the quiet period over Christmas should allow them to catch up, he said.

Some advisers are frustrated and not managing customer expectations, Loan Market’s Bruce Patten says.

Loan Market mortgage adviser Bruce Patten said turnaround time issues emerged after banks started advertising approvals in 48 hours, and advisers wanted that too.

“The Commerce Commission’s recommendation that advisers approach three banks for an application is also hindering things. Some advisers are taking that too literally, and it’s clogging up the system.”

But it was all “a bit of a storm in a teacup” because some advisers were frustrated and weren’t managing customer expectations, he said.

“We are telling agents there is a seven to 10-day turnaround time, but it is possible to push applications through more quickly. We got one in three days this week, for example.”

Falling interest rates meant the market would get busier in the new year as they strengthened people’s decision to buy, Patten said.

“It will drive house prices up in some areas next year. Probably not Wellington, but Auckland should start to see an upturn.”