The news today that ANZ Bank is lowering its one-year fixed term lending rate will be greeted as good news for mortgage holders and for the property market that has been in the doldrums for two years. Whether it is good news for first home seekers rather depends on how good it is for property prices.

New Zealand, along with other developed countries, has seen two long booms in house prices since the turn of the century. The first ended quite gently while the United States was suffering the collapse of "sub prime" mortgages that led to the global financial crisis. New Zealand did not suffer the fall in values and foreclosures seen in the US. Prices here fell only about 5 per cent because heavily mortgaged investors could afford to hold on to properties in the hope the market would recover.

Volume dropped sharply, prices did not. And the market did recover not long after the global crisis. It entered an even bigger boom from 2013 as the economy grow strongly on the Christchurch rebuild and record immigration. That boom ended in 2016 when the banks become concerned they may become overexposed to New Zealand's residential property prices, which are higher relative to average incomes than probably anywhere in the world. It was the chief executive of ANZ who made that concern public in a speech.

Now the bank is lowering its key home lending rate and it is likely to be matched by other banks. ANZ is billing its offer of finance at 3.95 per cent, fixed for a year, as the lowest home-loan rate to be offered by a main bank in New Zealand since just after World War II. It has also dropped its two-year rate. The bank notes the economy remains strong, inflation and unemployment are both low and tourism is strong.


It will also have taken a cue from the Reserve Bank Governor Adrian Orr who announced on Thursday that the bank expected to hold the official cash rate at its current level through next year. That is a remarkably long projection considering the US Federal Reserve is steadily raising its base rate as its economy overheats on Donald Trump's tax cuts stimulus.

The high US dollar is lowering our dollar's exchange rate, making imports more expensive, notably petrol. That spells inflation sooner or later, which the Reserve Bank would be obliged to counter by raising its interest rate. Despite the Governor's indication this week, low interest rates might not last. ANZ's one-year fixed rate looks fairly brave in the circumstances.

And if it causes the house market to take off again, it will create problems for a Government committed to improving home affordability. Only this week Housing Minister Phil Twyford was justifying his relaxation of resale restrictions on KiwiBuild homes on the grounds that stable house prices would not encourage his buyers to trade up within three years on the capital gains he is now permitting them to keep. Prices might not remain stable for much longer.

The ANZ's move is fairly aggressive. Competing banks will have to lower rates too to keep their heavily mortgaged customers. This is the time of year when the residential property market normally gets a spring in its step. By Christmas we may see house prices well on the rise again.