Hawke’s Bay mortgage holders advised to tighten their belts

A rise in the Official Cash Rate is tipped to heap more pressure on Hawke's Bay homeowners. Photo / Warren Buckland.

Find secondary employment, take on flatmates, grow your own vegetables and don’t - if you can avoid it - spend money unnecessarily.

That’s the advice of Hawke’s Bay Property Investors Association president Sharon Cullwick, in the wake of the Reserve Bank raising the Official Cash Rate to 5.25 per cent this week.

Never mind that you just about need a second mortgage to buy a block of cheese, Cullwick is urging mortgage holders to tighten their belts in whatever way they can.

Banks have yet to raise mortgage rates in response to the hike in the OCR but Cullwick expects 8 per cent to become the norm.

“It’s not sustainable. Not at all,” Cullwick said of interest rates moving into that vicinity.

“Especially for those people who purchased at the peak of the market. Often they’d look at selling, but they can’t because they would get less money than they actually paid for the property, which means they owe the bank more money. It’s a really tricky situation.

“Anyone who’s on a fixed interest rate is fine, because often they’ve fixed for a year, two years or five years. However, people who bought houses when it was 2.99 per cent for example, they’ll be coming off their fixed rate which means they’ll go onto a floating rate.

“Those are up around 7.6 per cent, so they’ll be getting towards eight per cent soon.”

It’s a scenario Cullwick doesn’t see changing in a hurry, given global trends. No matter what New Zealand politicians promise in the run-up to October’s general election, there might not be a lot they can do about the housing market.

“We may have to think of this as our new normal,” said Cullwick.

The whole housing industry is under pressure, Cullwick added. Building costs are high and Inland Revenue revealed last month that as many as 50,000 construction companies across the country are behind in their tax returns.

Cullwick said there wasn’t enough supply to satisfy the Hawke’s Bay rental market, not least because it’s so expensive to build new properties.

The costs - and the time it continues to take to source supplies - mean the post-cyclone rebuild of Hawke’s Bay is likely to be a slow one. That’s on top of any delays that could be incurred waiting for insurance payouts on flood-damaged properties.

Cullwick bought her first property in 1998 and sits on the New Zealand Property Investors Federation executive committee. Back in 1998 interest rates were “14 or 15 per cent,” she said.

Her advice to prospective home buyers is to wait. If you do want to buy, don’t look at a long-term fixed mortgage rate.

“If you’ve been working on a rate of, say, 8.5 per cent and you’ve worked out what your repayments might be, you might go floating for three months or something in the hope they might start going down or at least settle,” said Cullwick.

“If you were going to fix, you might do a six-month fix or a year, but it’s still really high.”