OCR Increase To 6% May Impact On Rental Levels

OCR Increase To 6% May Impact On Rental Levels Says Property Institute

People renting residential property can expect that their rent may increase, Property Institute CEO, Conor English said today. This follows the Reserve Bank raising the Official Cash Rate (OCR) to 6% from a low of 4.75% in January 2002.

Mr English said today, “While the number of New Zealanders renting rather than owning a home is increasing, this does not mean that they are not affected by today’s interest rate rise. The cost of servicing a residential mortgage has gone up with the OCR rising from 4.75% to 6% and possibly more. This means that more cash is required from either the house owner of the tenant to service the debt.

“Therefore rents may need to rise to reflect this higher cost.

“For example, a house with a mortgage of say $250,000 at 6% interest means the interest cost is $15000 or $288 per week. If interest rates move to 8%, then the cash required to pay the mortgage is $20,000 or $384 per week. This is a significant increase, not only in percentage terms (33%), but in cash - $5000 or about $100 per week.

“Just as for people who own their own home, someone has to pay this somewhere – either the house owner, or the tenant.

“Rental levels are a determined by a number of things, including the supply of rental housing and the number of people wanting to rent. With reducing immigration levels, and high new house construction levels, the ability of residential property investors to recover these higher costs through increased rents is still to be determined.

“What is clear though, is that as interest rates continue to rise, the pressure is definitely building for rents to rise as well.” Mr English concluded.

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