What does the official cash rate increase mean for first home buyers?

PHOTO: First home buyers are going to be up for higher mortgage rates. FILE

With the official cash rate now at a six-year high, the First Home Buyer’s Club is warning an increase in interest rates would put extra pressure on people trying to get into the housing market.

The Reserve Bank has raised the official cash rate (OCR) to 2.5 percent and promised more rises until it gets inflation under control.

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But what does the mean for people trying to buy their first home?

First Home Buyers’ Club director Lesley Harris told Checkpoint time would tell how much of an impact it would have on first home buyers.

“Just because the official cash rate has increased, doesn’t necessarily mean that interest rates are going to move straight away but we do predict that interest rates will continue to climb up a little bit more – but they are still relatively low historically.”

The banks were stress testing at 6.7 and 7.7 percent, and if the interest rates were to rise, that meant less money in people’s pockets for things like food, transport, Harris said.

It was really tough getting a mortgage deposit together for first home buyers, she said.

“It’s very difficult for first home buyers, certainly for people getting into the housing market, trying to face that deposit.

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“We’re hearing things like it’s around about 11.8 years for an average person to save for that deposit and a huge amount of first home buyers are in fact relying on the bank of Mum and Dad – which we now know is the fifth biggest lender in New Zealand, even ahead of Kiwibank. Which is great for those that have access to a bank of Mum and Dad but unfortunately not everybody has.”

There was a huge disparity between people’s incomes and what they could afford to borrow versus what they needed to get a mortgage, she said.

Some banks were turning down people who had high deposits gifted from parents.

“We saw one recently, parents chipped in the full deposit and the children had, it was about a $300,000 income. They were declined on the basis that they couldn’t demonstrate that they had saved a good portion of that deposit.”

There was a lot of work still to do and obstacles needing to be revisited, she said.

Home pricing slipping

The growth in house prices was slowing further, with fewer houses being sold and taking longer to sell, new data shows.

Property sales down were down 38 percent on year ago, 43 percent in Auckland.

INTEREST RATES BITE: Property sales down 38% on year ago, 43% in Auckland

One of the positives in the market at the moment was far less properties going to auction, Harris said.

“The clearance rate is a lot lower than what it used to be, say a year ago. So with a fixed price, or by negotiation, a first home buyer obviously doesn’t have another house to sell so often they can go and negotiate really hard and get a good deal.”

That was a plus for first home buyers, she said.

“We want to cling to all the positives that we can – and that is definitely one.”