What a Positive Official Cash Rate Announcement Means for New Build Home Buyers in New Zealand

A positive Official Cash Rate (OCR) announcement typically means lower interest rates and more affordable mortgages. This is great news if you’re a new-build home buyer. Kiwi borrowers have waited a while for falling rates. Now that it’s here, potential home buyers may be wondering whether to make their move.

At Latitude Homes, we’re big believers in helping Kiwis from all walks of life secure their own home. That’s why we provide a wide range of plans and prices for new builds, including complete house and land packages. Below, we explore how the OCR impacts interest rates and what trends we can expect to continue seeing with rates, paying particular focus to new house builders in New Zealand.

The OCR and Its Role in New Zealand’s Housing Market

The Reserve Bank of New Zealand uses the OCR to influence interest rates, aiming to control inflation and keep prices stable. The OCR has steadily been rising since October 2021 to combat high inflation, reaching a high of 5.5% in May 2023, where it remained until July 2024. This has meant higher mortgage stress, slower house price growth and a housing market that’s less affordable for more Kiwis.

In recent times, we’ve finally seen some relief with the RBNZ reducing the OCR from 5.25% to 4.75% on October 9 2024. This move indicates inflation is coming under control and is good news for the financial outlook for prospective homeowners. This trend is expected to continue at the upcoming OCR announcement on 27 November 2024.

The Impact of a Positive OCR on Mortgage Rates, Lending Approvals, and Loan-to-Value Ratios

The OCR cut is expected to have several positive impacts on the property market:

Lower Mortgage Rates - Lenders often pass on rate cuts to their customers. With approximately half of all mortgages on fixed or variable loan terms for six months or less, many borrowers will get the chance to lower their rates and secure a better mortgage package in the next few months.

• Lending Conditions - When the OCR lowers, lending conditions also typically ease. This means it may be easier to secure finance, with less stringent income verification, lower credit score requirements and not as much scrutiny of your financial history.
  
  
• Loan-to-value ratio (LVR) - Lenders use LVR to assess the risk of a loan, with an LVR over 80% of the property value considered higher risk. To mitigate this risk, they may reject your application or charge Lenders Mortgage Insurance (LMI). The lower the interest rate, the lower your LVR tends to be. This means better loan conditions for the buyer. For example, a better interest rate and lower deposit requirement.
  
  
• Stable Property Prices and Increased Buyer Activity - With buyer confidence boosted, auction participation is set to increase following recent rate cuts. Despite this increased buyer interest, property prices are set to remain stable, with house prices down by just 0.5 percent in September compared to last year according to CoreLogic data.
  
  
• Opportunities for First-Home Buyers - Stable prices, lower rates and better home loan products means there are more opportunities for first home buyers looking to enter the market, whether they’re looking for existing properties or as new house builders.

With market conditions looking increasingly favourable for new home builders, planning ahead is more important than ever in order to navigate approval timelines in a high demand market. Economists predict that it’ll take until around mid 2025 for the full impact of these cuts to take place on the economy. Taking steps to plan your build now will ensure you won’t get stuck waiting.

Maximising Increased Purchasing Power in a Positive OCR Market

If you’re a prospective buyer or new home builder, now is an excellent time to assess your financial situation and consider your options. First home buyers should take another look at their borrowing capacity now that rates are lower. A positive OCR means more affordable mortgages. That house and land package that might have been unthinkable a couple of years ago may be within reach now. Many banks have already started lowering their rates and this trend is expected to continue.

With inflation under control and the economy looking like it’s in rough shape, the Reserve Bank's priority is now to get us to what they call a 'neutral' OCR, one which doesn’t stimulate or restrict the economy, as quickly as possible. The RBNZ has said that a "neutral" level is around 3%, meaning we can expect mortgage rates to settle somewhere between 4.5% and 5%.

Why House and Land Packages are Particularly Appealing in Today’s Market

House and land packages are ideal if you’re a new home buyer looking to make the most of your purchasing power while retaining maximum flexibility over your choices. The key is to find the right location and builder. Do some research into the home builders. For example, explore previous work they’ve completed, obtain independent references of previous clients and check online for testimonials. At Latitude Homes, we offer a range of house plans that are customisable, giving you control over any must-haves you have, including:

• Number of bedrooms and bathrooms
• Interior and exterior design preferences
• Storage space
• Backyard
• Deck/patio/outdoor entertainment area

Whether you’re looking at pre-designed house and land packages or customising their design, think long term and ensure it is future-proof for the lifestyle you want to live while keeping resale value in mind.

Financial Planning and Long-Term Strategy for New Build Home Buyers

Set a realistic budget and do your research to find the right mortgage product for your circumstances. Consider long-term financial planning and strategy. This includes future- proofing your home loan to prepare for potential OCR changes over time.

Finding the Right Home Loan

Fixed home loans may be appealing now but keep in mind that rates may continue dropping. Depending on your circumstances, a variable or split rate structure may be more advantageous. You should also look at other features like offset accounts and redraw facilities. The right mortgage all depends on your borrowing capacity and the particular lender.

In some circumstances, you may be able to secure today’s rates for a house and land package scheduled for completion in the future. Either way, ensure you carefully examine each home loan product you look at. Don’t make the mistake of focusing just on interest rates only to find yourself paying large monthly fees, application fees, break costs and valuation fees.

Exploring Grants and Schemes for First Home Buyers

If you are a first home buyer, you may be eligible for a First Home Loan, which means you only need a deposit of 5% compared to the standard 20% required by most lenders. Keep in mind there are certain restrictions based on your household income and the value of the property you want to buy based on where you live.

You can also withdraw from your KiwiSaver account to go towards your home loan deposit if you’ve been a member for at least three years, as long as you leave a minimum balance of $1000 in your account. You may also qualify for a KiwiSaver HomeStart grant of up to $10,000, depending on how long you’ve been contributing and whether you’re buying a new or older home.

Seize the Opportunity – Positive OCR Is Good News for New Build Home Buyers

Stay ahead of the curve by staying proactive and informed about this new positive OCR environment. Discover how you can make the most of your purchasing power and your ability to secure the best house and land package for your circumstances. Do plenty of research and don’t hesitate to get advice on how to best leverage the current market conditions for long-term homeownership success.

Start finding ways to stretch your budget now so you can make the most of your increased purchasing power in this positive OCR environment. Eliminate wasteful spending, clean up your credit, explore what grants and schemes are available for you, start setting goals and create a detailed budget. Get pre-approval for a home loan early so you know what kind of properties are within your budget. This is often valid for six months, which gives you time to find a suitable property or house and land package that is within your budget.

Explore Our House and Land Packages

At Latitude Homes, we’re the home builders you can trust in New Zealand. We have years of experience helping Kiwis nationwide achieve their homeowner dreamers, with affordable, high quality house plans across Auckland, Christchurch and more.

Explore our house and land packages today or get in touch with our team if you have any questions.