low interest rates


Super-low interest rates are a blessing to those already on the housing ladder. For those still renting and without a deposit, it is yet another nail in the long-sealed coffin of potential home ownership.

Last week, when Heartland Bank became the first lender in New Zealand history to offer a home loan interest rate below 2%, it carried all the trappings of good news.

Various media reports quoted industry reps celebrating the milestone: “Homeowners are reaping the huge benefits of low interest rates,” one said. Costs were being “passed onto borrowers”, said another. It ostensibly got even better when news broke that other banks were likely to follow suit and be lured into an ever-aggressive price war. After all, the RBNZ is expected to drop its Official Cash Rate (OCR) even lower than 0.25%, allowing banks to extend even cheaper credit to their customers.

To real estate agents and existing homeowners, it seemed like a golden age was dawning. With interest rates this low, there would be far more people going to auctions and making outrageous bids. There would also be less to pay on regular mortgage payments, freeing up money for more holidays, new cars or simply to pay off debt faster. Suddenly, in the middle of a recession, a large group of New Zealanders felt richer.

And while people feeling wealthier may be a welcome consequence of the RBNZ lowering the OCR, it has made an equally large group of New Zealanders feel poorer. For the many people who are still renting and haven’t yet saved a deposit, these super-low interest rates aren’t a good thing, and have only transmuted the prospect of home ownership, already a difficult goal, into an absurd fantasy.