Mortgage rate cuts 'double-edged sword'

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Posted 24 months ago by Pope & Co. Mortgages

All the major banks have made moves on lower mortgage rates since the Reserve Bank cut the OCR to 1%.

In an interview with NZ Adviser, Craig Pope of Pope & Co Mortgages said that while this is good news for borrowers, it's also a bit of a double-edged sword for those who may not be able to reap the benefits of a low interest environment.

"The hardest thing for mortgage advisers is educating borrowers around what the cut means, and explaining that their rates won't be automatically dropping by half a percent overnight," says Craig Pope, of Pope & Co. Mortgages.

"There's a lot more complexity to it than that, so it's a bit of a double-edged sword—we have clients who have been holding off to see if rates drop further, so we need to help people understand the dynamics in the background."

“Borrowers who are already on a higher fixed rate also think that they can automatically drop to a lower rate, so we field a lot of calls trying to explain the dynamics around that,” Craig said.

“The banks are still tight with their criteria, and their servicing calculators remain quite strict. Getting a loan is still quite challenging, especially for low-deposit borrowers.”

“People who have equity might consider rental properties as a way to deliver a better rate of return, so it’ll be interesting to see if there’s an uptick in investment property purchases. Those people tend to be quality borrowers and don’t face the same challenges in accessing credit, so that could definitely be one outcome.”

Read the full NZ Adviser article here.

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