Rental Property Investment Challenges Rising for NZ “Mum and Dad” Investors Amid Market Pressure

Date Published: 25 May 2024

Key Facts

• “Mum and Dad” investors are struggling with rental property ownership as the gap between rent returns and mortgage costs are resulting in weekly top-ups of $350-$450 required to maintain cash flow.
• Existing investors who purchased properties at lower prices are more comfortable in the current situation, and there hasn’t been a mass selling trend among them.
• New Zealand experienced a technical recession with 0.1% decline in GDP in Q4 2023, following a 0.3% fall in Q3, making it the fourth decline in five quarters.
• February’s mortgage lending data from the Reserve Bank is expected to continue the slow upwards trend, with higher equity borrowers boosting lending flows.
• 57% of existing mortgages will see a rate repricing within the next 12 months, potentially leading to a rise of 1-1.5%. Therefore, the process of repricing onto current interest rates isn’t finished yet.
• ANZ will publish their consumer and business sentiment measures for March, which is hoped to reflect rising confidence and easing inflation expectations.
• Job figures from Stats NZ show employment has been trending higher, helping mortgaged households adjust to current interest rates.

Article Summary

The current New Zealand property market poses challenges for local investors, especially those trying to balance mortgage rates and rental returns. This situation is resulting in weekly top-ups of $350-$450 needed to maintain cash flow. However, long-term investors who have purchased properties at lower prices are faring better, reporting comfort with the current market environment.

New Zealand’s recent economic landscape saw a minor decline in GDP, marking a technical recession. Yet, the figures are somewhat expected, as it aligns with the Reserve Bank’s efforts to manage interest rates, decrease spending, and control inflation. Meanwhile, an expected rise in future mortgage lending data is anticipated as higher equity borrowers boost banking flow.

Existing mortgages are due for a rate repricing, increasing by nearly 1-1.5% in the following year. This change could result in repayment challenges, making it a critical issue to monitor. On the other hand, labour market conditions are presenting a bright side, with rising employment rates helping households adjust to the current interest rates.

Further sentiment measures from ANZ for March may hopefully reflect rising confidence and easing inflation expectations. All these combined economic events and projections will ultimately still shape the property market and impact both homeowners and investors.

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