As of January 2024, the mortgage interest rates in Australia and New Zealand are experiencing varied trends influenced by several economic factors. In Australia, the average variable mortgage interest rate is around 7.26%, with the lowest variable rate available at approximately 5.99%. The average fixed mortgage interest rate in Australia stands at about 6.72%, with the lowest fixed rate being around 5.80%.

In New Zealand, the situation is slightly different. Interest rates have been increasing since 2021 due to inflation. As of November 2023, all the 1-year rates from the main banks are over 7%, with most sitting closer to the 7.2% – 7.4% mark. The Reserve Bank of New Zealand (RBNZ) plays a crucial role in setting these rates, with the Official Cash Rate (OCR) being a significant factor. The OCR was at 5.5% as of the last update, a significant increase from its 0.25% level in May 2020. Most banks in New Zealand expect the inflation to be back within the 1-3% band by September 2024, which could lead to a reduction in interest rates. Long-term, the fixed mortgage interest rate is assumed to average around 4.5%.

For anyone who doesn’t know, the New Zealand banking sector often borrows funds from international markets, which influences the domestic interest rates. With the global economy recovering from the pandemic and other international events, don’t be surprised if overseas lenders look to raise their interest rates. This, in turn, could lead to an increase in the domestic rates in New Zealand. However, there is a possibility of a temporary drop in mortgage rates during the warmer months due to increased housing market activity and competition among banks.

For New Zealand residents considering mortgage options, it’s important to understand that banks offer different rates depending on the term of the mortgage. Negotiating a better interest rate is possible, although banks are more likely to stick to their advertised rates. Special rates are typically available to most mortgage borrowers, but they usually require at least a 20% deposit. Standard rates, which are higher, apply to those with smaller deposits.

While Australia is experiencing relatively high mortgage interest rates, New Zealand’s rates are influenced by both domestic economic conditions and international borrowing costs. Homeowners and investors in both countries should keep a close eye on economic predictions and changes in the OCR to make informed decisions about their mortgages.

The varying mortgage interest rates in Australia and New Zealand not only affect homebuyers but also have significant implications for residential and commercial property investors. These impacts can differ due to the nature of investments and the objectives of the investors.

Commercial Property Investors: Commercial property investments often involve larger loan amounts and longer loan terms. The current interest rates might increase the cost of capital, impacting the profitability and viability of commercial projects. However, commercial leases often include provisions for rent increases, which can help offset higher mortgage costs. Several of the commercial property investors we work with also look into fixed-rate loans to mitigate the risk of rising interest rates.

Residential Property Investors: In Australia, where the average variable mortgage interest rate is around 7.26% and the fixed rate is about 6.72%, residential property investors may face higher costs for financing property purchases. Higher interest rates can lead to increased monthly repayments, reducing cash flow. This could deter some investors, especially those relying on rental income to cover mortgage costs. However, these higher rates might also lead to less competition in the market, potentially allowing for better purchase prices.

Commercial Property Investors: For commercial property investors, the rising interest rates in New Zealand imply a careful assessment of yield versus cost. Like in Australia, commercial properties often have longer-term loans, and rising rates can significantly impact overall costs. Commercial investors might be more exposed to interest rate fluctuations, especially if their properties have variable-rate loans. However, the commercial property market often offers higher yields than residential properties, which can help offset the higher interest costs.

Residential Property Investors: With the 1-year rates from major banks in New Zealand over 7%, residential investors are likely facing increased costs in financing new purchases and refinancing existing properties. This can squeeze the rental yields, especially in markets where rental prices cannot be easily increased. The anticipation of a potential decrease in rates by 2024 might encourage investors to opt for shorter-term fixed rates.