Most property investors opting for one-year fixed mortgages, survey finds
Many property investors are opting to take the short-term pain of fixing their mortgage rates for a year in anticipation of interest rates easing, a survey shows.
Of the 274 residential property investors surveyed for the latest Crockers-Tony Alexander Investor Insight, 62 percent preferred to lock in a one-year fixed term over longer options.
Tony Alexander told RNZ the response mirrors expectations that monetary policy will ease over the next year and continued the decline in the average fixing term preferred by borrowers.
"I think there's a growing realisation that with the economy potentially going into recession, inflationary pressures definitely will eventually fall away and that means the Reserve Bank will be cutting interest rates, probably strongly, through 2024-2025.
"So an increasing proportion of borrowers will be looking to take advantage of the falls in rates, when they eventually come along and of course, the only way to do that is either float or fix for one, maybe towards the two-year area."
The Reserve Bank will next month review the cash rate after delivering a jumbo-sized interest rate rise of 75 basis points in November in an effort to cool the economy.
This week's annual inflation figure for the three months ended December, which remained at 7.2 percent, has some analysts forecasting the central bank will opt for a softer rate hike of 50bp or 25bp, while others stood firm on expecting another bumper 75bp.
Alexander said fixing mortgages for one year could be a gamble, but so could fixing for a longer term.
"No matter what you do, it's always a gamble," he said.
"If you go and fix for five years, you get the certainty, of knowing a rate for five years, but you're gambling that there's not going to suddenly be a big fall in the short term interest rates over that period of time.
"The risk, of course, with fixing for one year is if inflation were to suddenly bump back up again and the Reserve Bank has to raise interest rates higher than current expectations much later on this year.
"That's not the prevalent view, but there's always the risk of something like that."
The survey also showed property investors were continuing to turn away from new build homes, investing instead in existing properties, as construction costs go through the roof.
More than half of respondents, 62 percent, who planned to buy another property in the next year will opt for an existing property, while just 26 percent said they would invest in a new build, 4 percent below the survey's average.
Stats NZ data out this week showed construction prices were up 14.1 percent in the year to December, indicating both material and labour costs were going up and building a home was more expensive.
Alexander said the average fixing term preferred by property investors had been trending downwards over the past few years, but the response also reflected the pressures the construction sector was under.
"I think people have been reading the tea leaves there in terms of difficulties for a lot of builders getting staff, materials, the prices of the materials, and there's been no shortage of media articles about projects going wrong and property developers and builders going under.
"I think there's a general air of caution that has appeared there for those looking to make a purchase.
"With regard to the new build sector, it's not a massive decline by any means, but I think it's more of a pullback towards long-term reality."
Alexander said it also reflected the increase in the number of listings of existing properties on the market, which offered investors more options to choose from.
Despite the survey's smaller response pool, owing to the holiday period, Alexander said there were signs that the initial concerns around rising interest rates and a recession had eased.
"For instance, the net proportion of investors saying they were thinking about buying something again, that was sitting at about plus 1 percent in the survey," he said.
"Before November 23, when the Reserve Bank increased the official cash rate by the record three quarters of a percent, lifted their prediction for the peak from 4.1 percent to 5.5 percent, it fell away to about minus 5 percent.
"Now, it's recovered to zero, with as many saying they want to buy as sell.
"It's not back into positive territory - investors aren't saying the worst is over and everything's going to be okay, but it is a small piece of evidence of some of the shock value from the Reserve Bank just starting to ease at the margin."
January's Investors Insight also showed a net 2 percent of property investors said it was easy for them to find good tenants, the first positive development in the category since June last year.
Alexander said it was unclear what drove that result, but immigration could have played a part.
"It's interesting, in the context of the previous six surveys there was a negative result, basically the investors saying it was getting harder and harder to get good tenants," he said.
"Maybe what's happening here really is that with the net migration numbers turning around, there's a few more people becoming available to pick and choose from."