What if I can’t pay my mortgage?

The Reserve Bank and government have announced assistance packages for those of us who no longer have sufficient income to pay our loans. The banks are working through the implementation of this and are receiving a huge number of calls. Your mortgage adviser can also help. In short there are interest only options and mortgage holidays available but be aware that both of these options will extend the time it will take to repay the entire loan.

Will property values drop?

Maybe, but not by that much. ANZ are predicting a potential drop of 3.5% this year due to the recession triggered by Coivd-19. However it’s important to remember that this is only relevant if you are intending to wait between selling and buying (IE: several months) as that could see you transacting in different real estate markets. Plus it’s worth noting, the climb out of the GFC around 2010 saw property prices recover quickly. Buying and selling in the same market is the key.

Will interest rates drop?

The floating rate has and banks have finally moved on lowering their fixed rates a bit. The 1yr and 18mth rate offer the best available. Rates are predicted to stay lower for longer now and we may yet see another small reduction. Regardless, servicing a mortgage has never been cheaper. The banks still face the dilemma of trying to raise funds using “attractive” deposit rates while growing market share with attractive mortgage rates.

Will lending become harder to get?

For those in certain industry sectors the short answer is yes because their employment has been affected and the recovery in their sector may take longer EG: travel and tourism. The Reserve Bank has eased bank requirements and along with the government are pulling all the levers to get the country through this time in the best shape possible. Banks are still open and ready for business however right now, they are handling a huge number of queries around mortgage relief.

Should I Still Buy A House?

The short answer to this is that there is really not much difference between having to keep paying rent and paying a mortgage from a risk perspective - both have to be paid wherever you are living. Property still remains the best asset purchase you can make. The challenge now is that many first home buyers have seen a chunk of their deposit evaporate from their KiwiSaver funds which may delay their ability to buy. But this is another place for a timely reminder. When you first invested in a “growth or balanced-growth” type fund, your adviser should have explained that markets go up and down. When this current volatility is over, economic activity will accelerate again and those funds will perform nicely.

I really like what Tony Alexander (ex BNZ Economist) had to say:

“Our economy has been placed in a state of suspended animation. The government is able to pick up the economy and time shift it. They can freeze the things we know usually happen during a recession and only let them happen once again down the track when the recovery is underway and the drive for them to occur will not be there to the same degree."

While housing activity has virtually ceased -

1. Interest rates are record lows and heading lower and will be there for years.

2. We enter this period without a boom in housing debt.

3. Banks remain well capitalized and look like they are about to receive even more support for lending from the Reserve Bank.

4. China shows us that if we implement early enough lockdowns/self-isolation can work.

5. The shortages are there, and now they will get worse because all house building is now on hold for 4 to 8 weeks.

6. There is fiscal stimulus coming and the Minister of Finance has even told us when – in the May 14 “Recovery Budget”.

Stay safe and stay sane.