House Prices: Five Tips for Managing Rising Interest Rates and a Buyer’s Market

As the housing market turns from white hot to comfortably warm, homebuyers and investors are wondering if now is the right time to take the plunge and buy a property or wait for potential future savings.

Average asking prices in major centers have been on a downward trajectory since February and CoreLogic’s National House Price Index fell 0.8% in April – the first drop since values ​​fell 0.2% in August 2020.

However, as the decline has been accompanied by a rise in interest rates, the cost of monthly repayments is rising even as prices stabilize and fall.

The combination of falling prices, rising interest rates and economic tightening across the board means fewer potential buyers in the market, putting the power back in the hands of those willing to make a offer.

That’s why Property Apprentice, which has been helping Kiwis buy homes since 2010, has teamed up with Newshub to find out what rising interest rates and the buyer’s market mean for you.

“I think it’s one of those ironic things we call a buyer’s market, but there are hardly any buyers in the market!” says Debbie Roberts, Real Estate Finance Apprentice.

“It’s a much better time to negotiate on a property when you’re not competing with hundreds of other buyers because you have the opportunity to negotiate a better deal and there are always people who need help. to sell.”

But while there are benefits to being a buyer now, there are still potential pitfalls, especially as interest rates continue to climb.

Here are our top five tips for navigating the changing real estate market.

1. Call in the experts

Even for seasoned investors, the process of getting a mortgage approved and then managing repayments can be laborious and complex. A mortgage advisor is your best friend when investing in real estate, as they will navigate the financial maze for you and advise you throughout the life of your mortgage, from drawdown to the last dollar paid off.

The best part is that while their services are invaluable, there is generally no cost to you for using an independent mortgage advisor since they are paid by the lender when your loan is approved.

“If you work with an independent mortgage adviser, they can make sure they submit your loan application to the best bank for you rather than the bank you saved with,” says Debbie.

“The Mortgage Advisor can also help you reduce the risk of interest rate increases. They will look at your overall financial situation and see how much wiggle room you have in your budget.”

2. Don’t be too scared of rising rates

With interest rates hitting historic lows recently, the Reserve Bank’s 0.50 basis point hike in April sent jitters to the market. But Debbie notes that current mortgage rate increases are relatively modest when viewed over the longer term.

“People freak out about interest rates going up, but overall they are still below average. Before the global financial crisis, interest rates were in the double digits. expect them to get that tough this time around.”

The average one-year interest rate over the past two decades (excluding exceptionally low interest rates due to COVID) has been nearly 6.5%.

“Now that we’re seeing interest rates ranging from 4.5% to around 6% right now, they’re still below the long-term one-year average,” she said.

As for what that means for your mortgage, Debbie suggests a good rule of thumb: if interest rates are above 6.5% then float, or go for short terms while if interest rates are lower at 6.5%, set them for longer durations.

The only certainty is that whatever your situation, rising rates will have an impact on repayments, so it pays to know your level of financial flexibility.

3. Explore your options

Although no one can predict the future with certainty, economists expect interest rates to continue to climb and peak around 2024. If you have an interest rate expiring in the coming year, check with your mortgage advisor to see if it’s worth breaking your current rate. ready in order to reattach.

While you will likely move to a higher rate in the short term, it will pay off in the long run if you avoid further upside in the future.

You’re also not locked into a single expiration date when it comes to fixed interest rates, so consider your options for splitting the mortgage and spreading out expiration dates so they don’t expire. all at the same time.

“If you’ve managed your interest rate expiration, you could hopefully lock in a lower interest rate and ride it out so that by the time you have to reset, interest rates could be down,” says Debbie.

Of course, rising interest rates aren’t just affecting mortgages you’ve already taken out and if you’re a first-time home buyer, they’re going to change the way banks assess your application.

4. Make sure your budget matches your mortgage

Banks will assess the affordability of your mortgage against rates higher than those charged today, taking into account future interest rate increases to determine which mortgage is available to you. Be sure to consider the impact of seven percent interest and above on your monthly repayments.

As always, the easiest way to get your mortgage approved and pay less each month is to ask for less money. Especially when looking for your first property, remember that it doesn’t have to be your forever home. Compromise: Whether it’s a few smaller rooms, further out of town, or in need of a little TLC, it can all make a huge difference to your long-term finances.

“A lot of first-time home buyers are interested in investing in real estate and they go into over-leverage by buying a more expensive home,” says Debbie.

“But it actually prevents them from investing sooner rather than later. So starting small and growing up is a much stronger financial plan for most people.”

For those already managing a mortgage and watching repayments rise with dread, it might be beneficial to look at your budget to see if there are any areas where you could cut costs or even increase your income. Those with rooms to spare might consider taking on roommates to help with mortgage costs.

If there is excess cash, it is generally wise to pay off your mortgage sooner when interest rates are below average than later when costs rise.

As with any lump sum of money placed in a savings account that is currently earning you next to nothing in interest, you will likely be better off financially by getting that money to start working for you in some way. to an investment. Visit the Property Apprentice partners on MI team for more tips.

5. Beware of trying to play the market

While some buyers may see the current trajectory of the market and decide to expect a better potential price around the corner, attempting to predict the market this way could come back to bite you into your budget.

“You never know what’s going to happen next,” warns Debbie, pointing out that while potential buyers may qualify for loans today, that could change as interest rates rise.

“Make decisions based on the facts in front of you today. And if you can get a loan today, just understand that you could potentially negotiate a better deal with a lot less stress.”

Above all, says Debbie, stay positive about your prospects and enjoy the process where you can.

“This is my favorite stage of the real estate cycle! Forget crazy auctions and multiple offers and all that kind of stuff. It’s a much more relaxed stage. You can take your time to make really good informed decisions with a lot less depression. “

Wherever you are in your property investment journey, ready to make offers or just starting to save for your first deposit, head over to Property Apprentice for more assistance.

This article was created for Real Estate Apprentice.