KEY POINTS:
Prospective homeowners will benefit from a battle of the banks to offer their best mortgage rates - spurred by last week's official cash rate cut to 3.5 per cent.
The 4.75 per cent drop from its 8.25 per cent peak in June last year plunges it to
its lowest level ever and Reserve Bank governor Alan Bollard again urged banks to pass on lower rates to households.
The one-year mortgage rate most popular at present has fallen to around 5.7 per cent from 8.61 per cent in January last year. And the floating rate has dropped to around 6.9 per cent from 10.3 per cent last month.
Overall, mortgage rates have tumbled to their July 2003 level - a 5 year low - at the same time as property market buying conditions are boosted by a sustained drop in property values for the first time since 1998.
Quotable Value's latest report shows property values fell by 7.4 per cent last year.
Mark Dow of QV Valuations suggested prospective buyers shouldn't hold out inflated expectations of further falls: "With the significant drops in interest rates over the past three months, there has been an increase in market activity and values appear to be flattening again."
Massey University property professor Bob Hargreaves expects more first home buyers to enter the market.
Neither mortgage rates nor property prices are likely to fall much more, says BNZ chief economist Tony Alexander, who tips three to five-year mortgage rates to bottom around 5.5 per cent in coming weeks.
"People will look at these borrowing costs and they will never have seen them in their lifetimes. We could see some improvement in real estate activity in the near future."
Record low rates attracting buyers again and a worsening shortage of property as construction stalls means house prices will slide up to a further 5 per cent, Alexander says.
So prospective buyers must balance waiting for possible decreases against the risk of missing out on securing a rock-bottom mortgage rate. "Tens of thousands of people" will miss the imminent rates window, he warns.
Just because lenders are offering such favourable rates doesn't mean they'll go easy on prospective homeowners, though. Rationing of credit by banks and demands for higher deposits may keep affordable housing out of the reach of buyers with only small deposits.
However, mortgage brokers report that all the banks have "shadow" criteria for lending above 80 per cent of a home's value - so borrowers with good incomes may still be eligible for 90 per cent and even 95 per cent lending. For those who fit the bill, here are four tips for getting an even better deal on a home now:
Haggle
Prospective home buyers shouldn't be afraid to bargain hard. Find out as much as you can about the property so you can gauge their flexibility on price. Put in a cash offer where possible - hurting vendors may just leap - but only if you are actually "cash unconditional", says president of the Auckland Property Investors Association Sue Tierney. If you are borrowing, you need an unconditional letter of offer where the bank has agreed to lend on that property.
In tough selling conditions, buyers with a big deposit could find it easier to negotiate a better price. "You are giving the vendors confidence that you are genuine," says Tierney.
But only agree to pay a deposit if you actually have one - a bank does not lend you the deposit unless you already have other property it can use as security. Tierney suggests offering a quick settlement, or one that is flexible to suit the vendor. "If you can work in to suit the vendor it sometimes takes the focus away from the price and you can negotiate a better one."
Get help on your loan deal
When the market was hot, borrowers could shop around to land the lowest mortgage rate possible, getting competitive bids from lenders. But now there is not enough credit in the marketplace, says Tierney, and people who once could have easily obtained a mortgage will not get approved.
Every time you apply for a loan, the lender runs a credit check on you that shows whether you've applied to other banks. A good mortgage broker will discuss the best option with you before submitting your loan to any lender.
With banks having trimmed staff from their lending teams, Tierney says your loan application will be more appealing if you have provided all the paperwork - ask your broker what will be required.
Get loan-savvy
National Bank managing director Jenny Fagg suggests borrowers consider splitting their loan into smaller amounts, fixed for different terms, to avoid having to re-fix the amount once rates become less favourable. Those with disposable income may benefit from leaving a portion on the floating rate, allowing flexibility for increased repayments.
Surplus household income in the revolving credit account can reduce the interest cost of the mortgage. But revolving credit facilities only suit people with the discipline not to draw on it for consumables.
Choose a location that will rebound
Before you make an offer, consider the location and how that will affect its value in the future. Think about the next buyer your home might appeal to.