The Shocking Milestone That Interest Rates Just Hit

Hello everyone, I'm Rupert Goff. Let's talk about what happened in March 2022 in the mortgage and property market, with the biggest news being the shocking milestone that interest rates reached the very end of the month. But before we go into that, don't forget to like and subscribe to our channel to receive all the latest news and education for your mortgage. February's mortgage lending numbers came out mid-March, with $5.7 billion of mortgages being lent across all the banks in February 2022. This is down 36% from its peaks of $9.08 billion just three months earlier in November 2021, and compares to $7.6 billion the previous year in February 2021. That means lending from the same time last year is down by 25%. It's very easy to try and blame the CCCFA for the massive drop in mortgage lending, but there's a lot of other factors at play. The interest rates have doubled, and the servicing rate that the banks use, the rate that they test mortgage affordability at, is up from around 6% to around 7%. Add on to that, Covid was not prevalent in New Zealand at either the peak of lending in November or February last year. But really that doesn't explain it all. The Credit Contracts and Consumer Finance Act, or CCCFA, has hugely affected how banks assess mortgage applications, with the major change being a line-by-line review of the previous three months expenses. But more than that, the reputation of the CCCFA meant buyers stopped looking to buy, taking the steam out of the super hot New Zealand property market. It took the FOMO, the fear of missing out, from the buyers and made them do a reality check on what was affordable. Although lending is harder, taking some of the heat out of the market was generally a good thing, you wouldn't want properties going up 30% every year. But statistics released by Centrix, a New Zealand credit reporting company, show that the people worst affected by the CCCFA changes have been applicants with a score of over 700. In other words, really good applicants. That's because the measures in place prior to the CCCFA coming into effect already screened applicants with bad credit. Therefore the only people affected by the changes were people with good credit scores, traditionally the people that banks want to lend to. Speaking of the CCCFA, the government has announced that the CCCFA regulations are to be reviewed. The true timeline for changes is unknown but shouldn't be too long because governments around the world are known for their efficiencies and speedy work. Actually changing the regulations is the best outcome the New Zealand public could have hoped for. It's reasonably fast to do, usually taking only a couple of months, as opposed to changing the legislation itself which would take much longer and risk the property market going into free fall while we waited for it all to happen. OK let's talk interest rates. Early in March, ANZ moved their one year rate up 20 basis points from 3.79% to 3.99% and the two year rate up the same amount to 4.55%. Most other banks made their changes in the fortnight that followed, with ASB being the last one to raise their rates. As March wound to a close, ANZ again led the charge by increasing their rates to 4.2% for one year and 4.85% for two years, meaning interest rates have gone up by 0.4% in just under a month. More than that though, 4.2% is a huge milestone for interest rates. 4.2% per annum means the one year rate has officially doubled in just seven months from mid August 2021, when we were occasionally seeing 2.09% for one year. For those of you feeling a little unwell from this news, at the moment you have time to consider what your payments will look like in this new interest rate world and make adjustments to your lifestyle so you know what you can afford. Don't leave it until the maturity date to see if you can afford those new payments. And if you have interest rates due to mature soon, chat to your bank or your mortgage advisor about what to think about for a strategy going forward. And that's it for March, happy financial year to all you self-employed business owners out there, remember you have until about August this year to prepare your latest financial statements before the bank will need to see them if you're applying for a mortgage. Thanks again, talk soon.