Houses are selling fast, median prices are heading up; it sure feels like a buoyant market out there, but does that mean we’ve avoided a COVID-19 downturn in the property market?
The reality is that although the property market is busy right now, if you take a closer look, all is not quite as it seems. There are lots of buyers out there, but the vast majority are in the essential services – those that kept working through the lockdown.
For those that are in retail, hospitality or self-employed, it’s a different story. They’re getting by rather than getting ahead and their property goals are on hold because the banks are tightening up their lending criteria, making it hard to get finance if your income shows any impact from COVID-19.
Those in the tourism and aviation industries are doing it even tougher. Some of my clients have had to take a so-called ‘mortgage holiday’ – but it’s certainly no holiday and should only be a last resort. You’ll still have to make up the payments, eventually, and there’ll be additional interest charges. Under normal circumstances, taking a break from mortgage payments – even when arranged through the correct channels – results in a negative record on your banking history. You can only do it once in your banking lifetime and it can mean being unable to obtain a mortgage in the future. These are not ‘normal circumstances’, of course, so the Reserve Bank has instructed the banks NOT to make this record against anyone needing to take a mortgage holiday at the current time. The fact remains, however, that it’s a serious decision.
Some industries are booming right now. Building companies, banks, real estate agents, lawyers and accountants are busy and hiring. But other people are losing their jobs, so what does it all mean?
The Reserve Bank has expanded its Quantitative Easing programme – a.k.a. ‘printing money’ – up to $100 billion and extended the timeline to June 2022. That means interest rates will stay low for the foreseeable future and will likely go lower. The banks are preparing for the OCR to dip into negative territory and the Reserve Bank has a team working through the scenarios. This doesn’t mean that the interest rates at the banks will go to zero, but it does mean they’ll be exceptionally low.
With interest rates at a virtual standstill and property prices going up, no wonder those that do have money on hand are withdrawing it from the bank and putting it into investment property right now – and that’s the real driver behind our current real estate boom.
My advice right now is to get into the market – if you can. With interest rates as they are, paying the mortgage for a property worth $450,000 is likely to be cheaper than renting. But play it safe and don’t borrow right up to your limit. After all, we just don’t know what’s around the corner.
Years of experience mean Nathan Miglani knows how to give you the best possible chance of success with your mortgage application. Passionate about helping you through the process of buying a home or business, he’ll find the best deal for your unique circumstances. loanmarket.co.nz/nathan-miglani