2019 Interest Rates Prediction

It’s the time of the year when we buff up our Crystal Ball, gaze into the complicated world of economics and finance and come up with sufficiently generic forecasts/predictions to wow and amaze the crowd.  But first…

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How did we do with our 2018 predictions?

As a recap, our predictions in early 2018 were:

  • interest rates up slightly (1 year discounted rate 4.8%-5%)
    • Wrong (very!).  Discounted rates are down to 3.99% - 4.09%
  • Auckland house prices flat
    • Spot on!  According to the latest REINZ report, Auckland average house prices have dropped by a mere 0.6%.
  • Wellington/Christchurch house prices up ~10%
    • Half and half.  According to the same REINZ report, Wellington was up 9.8% (how is that for a prediction!).  Christchurch however was flat with only 0.2% growth.
  • first home buyers get a few bonuses to make it easier to purchase
    • Spot on but only just at the last minute.  The Reserve Bank has announced a reduction of the speed limits for first home buyers making it easier to purchase if you have a low deposit.  Read our article here or listen to my interview with Frances Cook here.
    • Furthermore, the KiwiBuild scheme continues despite key losses to their upper management.

More correct than wrong.  I'm calling 2018's prediction an overall success!

2019 Interest Rates Prediction

Where will interest rates be in a year or two?  Every news article in the property industry mentions it.  If you search "nz interest rates forecast", Google gives us 2.7 million results.  I haven't read them all.

At a very simple level, in the property market, interest rates are about controlling the money flow.  If money is a little too easy to get (often causing inflation), the Reserve Bank may raise interest rates.  If money isn't flowing enough, then the Reserve Bank may lower interest rates.

As we have mentioned in previous articles, the Reserve Bank is increasingly pulling different levers to control money flow.  If you own property, or are looking to purchase, the restrictions on LVRs are what you will notice first.  The Reserve Bank has introduced speed limits for high LVR borrowers (buyers with a small deposit).  These levers are particularly great because the Bank can target specific people - in this case Investment Buyers - and still offer more money to first home buyers.

So where will interest rates be in 1-2 years?  With historically low interest rates now (I know, I know, I said that last year!), the risk seems to be to the upside.  In other words, it seems more likely that the interest rates will move towards 5% rather than 3%.  The important question is, will it be back up to 7%, 8% or even (as per 2007) 10%?  And if it does, can you afford your mortgage at 8%?

With the Reserve Banks already beginning to loosen the LVR restrictions, I don't see 8% being a near-term risk.  They have plenty of options to cool a housing market if they need, without raising interest rates significantly.

Interest Rates forecast for 2019

My belief is that the most common 1 year discounted fixed rate will be 4.49% by December 2019.  At the time of writing, the discounted rates are around 4.09% so this would represent a small lift.

The recent reduction in interest rates (<3.95%) seemed to be in response to the large profits announced by the banks.  Once that had blown over, the interest rates jumped back.

Additionally, it's looking more likely the banks will need to hold additional capital which will make the cost of doing business slightly higher.  Even if the NZ economy continues on as is (which is great, by the way), it's looking likely a small rise in interest rates will occur.

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2019 Housing Market Predictions


Average house prices dropped in Auckland by 0.6% in 2018.  This was despite the doom-and-gloom crowd predicting the market to follow Australia down (and down and down).  My prediction is that the market will continue to remain flat (+/- 1% from December 2018).

I do expect rents to increase as the flow-through effects of ring-fenced losses, insulation requirements and even the recent Interest Only restrictions flow through to landlords.

But you want an exact number, don't you!  Well, currently a 3 bedroom house in Auckland rents for $650pw.  I predict the same 3 bedroom house will rent for $690pw - a 6.1% rise.

Wellington and Christchurch

Wellington has been having a long overdue capital gains party and, while I don't expect another 10% jump (sorry, 9.8% jump...), a number close to that isn't out of the question.  Let's say 7% for measurement purposes.

Christchurch seems to still be suffering from a lack of excitement.  Despite being long overdue for a jump in prices, I think 2019 will bring a growth in line with inflation of around 2% (sorry, Christchurch!  I hope I'm wrong!).

2019 First Home Buyers

The Reserve Bank has continued to relax their restrictions, particularly on the first home buyer market, however they have continued to make it more difficult to service a mortgage.  The tests that a bank must put an applicant through are getting more difficult and there is less room for "grey area" decisions.

My prediction is that first home buyers the Reserve Bank will hold off on most bonuses for first home buyers.  As discussed here, the low deposit borrowers are all but fully back in the market.

I would like to see the government adjust the upper limits (maximum purchase price and maximum income) for the HomeStart Grant and the Welcome Home Loan however I don't see this happening as Auckland property values are flat so there is no pressure to adjust.  Even just making the criteria so it matched the KiwiBuild criteria would make the process of buying a first home a little less complicated.

Summary Predictions:

No doom and gloom is in the short-term forecast and all is looking good.  As a scorecard for December 2019, here are my predictions:

  • interest rates up slightly (1 year discounted rate 4.49%)
  • Auckland house prices flat (0%)
  • Wellington up 7.1%
  • Christchurch up 2%
  • first home buyers are in approximately the same situation as December 2018

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