Investment property values and interest rates are inextricably linked. The recent interest rate increase announced by New Zealand’s central bank is intended to curtail spikes in inflation. However, property investors are left asking questions about how this latest increase will affect interest rates and the value of investment property.
Read on to learn more about the link between interest rates and investment property values and how this will affect property investors in the coming months.
Do Rising Interest Rates Affect The Value Of Investment Property?
Because mortgage rates are linked to the central bank’s interest rates, the recent rate hikes will see mortgage rates rising too. This directly influences the cost of borrowing funds with the overall effect of making investment property more expensive. Investors who have not fixed their rate will face higher repayments from now on.
These increases will lead to a drop in demand for investment properties as the willingness to go into more expensive debt declines. This decrease in demand and subsequent increase in supply can lead to a decrease in property values over time.
Decreased property values can, in turn, lead to an increase in willing buyers at these lower prices.
Interest rates therefore play a cyclical role in investment property values over time. Therefore if you are interested in purchasing an investment property, it is vital to take cognisance of not only the current interest rate but also interest rate forecasts for the next period of time.
Interest Rates Forecast For Investment Property In New Zealand
Long term interest rate forecasts for New Zealand give projected interest rates of approximately 4.0% in 2023 and decreasing to 3.0% in 2024. This is based on economic models devised from information supplied by the Reserve Bank of New Zealand which is responsible for all decisions on interest rate changes.
While these forecasts are based on the best possible information, it is not possible to precisely predict future interest rates. And interest rates are not the only determining factor in property values. As we have seen in the past, natural disasters, pandemics and other major events cannot be predicted, but can directly influence interest rates and investment property values in the future.
For more information on how investment property values are affected by interest rates and further forecasts on future rates, get in touch with Simpler today. Our team of expert mortgage brokers have all the latest information at their fingertips to give you the best advice.