Why does a war in Iran affect NZ house prices and home loans? – Ask Susan

Source: Radio New Zealand

Got questions? RNZ has launched a new podcast, No Stupid Questions, with Susan Edmunds.

We’d love to hear more of your questions about money and the economy. You can send through written questions, like these ones, but even better, you can drop us a voice memo to our email questions@rnz.co.nz.

You can also sign up to RNZ’s new money newsletter, ‘Money with Susan Edmunds’.

I am new to homeownership, and I wondered if you could do a piece sometime on how international conflict influences New Zealand’s mortgage rates and house values.

I am sure there are a few others like me who don’t really understand how an international conflict can influence domestic house prices!?

I can understand why it probably seems weird that something happening on the other side of the world can affect what people pay for their houses in New Zealand.

Here’s a very broad overview of how it works!

Interest rates: The war in the Middle East has disrupted the flow of oil around the world, and pushed up its price. That has made the cost of fuel more expensive. The concern is that this could make a whole range of other things more expensive, too – both in New Zealand and around the world. We use fuel to get things here, and the cost of that will increase, and we use fuel to make and distribute things within New Zealand, too. So prices are expected to rise.

The Reserve Bank’s job is to make sure that prices don’t rise too much. (Other central banks around the world are doing this in their countries, too.)

There is a concern that if prices rise in a sustained way, the Reserve Bank and other central banks may have to start increasing interest rates to try to slow the rate of inflation.

Already, we’ve seen wholesale markets (where banks borrow their money) pricing in the expectation of increases later in the year. So that means home loan borrowers have to pay more.

House prices: Rising interest rates tend to reduce buyers’ willingness to pay higher prices, because their home loans cost more to service. On top of that, this war and the resulting pressure on fuel prices is making a lot of households a bit nervous about how high prices can go, how they’ll cope – all that sort of thing. When people are feeling nervous or uncertain, they tend to be less likely to be willing to make big investments like house purchases – or to compete hard on price when they do.

So those factors combined mean that home loan rates are likely to be higher and house prices are likely to be lower than they would otherwise this year, because of the Middle East war.

How likely do you think it is for any government to remove the option of withdrawing KiwiSaver money to buy a first home?

This is something I’ve heard discussed a bit over the years. New Zealand is a little unusual in allowing people to tap into their retirement savings to buy a house. There are valid questions about whether it’s appropriate.

But I think it would be very politically difficult for any government to take this option away. It’s a big part of how a lot of people get into the housing market, and I can imagine the backlash would be intense. A lot of people have made their savings and investing decisions on the understanding that they’ll be able to use it for a first home.

We do need to improve retirement savings rates for New Zealanders but I don’t think removing the withdrawal option will be top of the list.

How much does each married superannuitant get per fortnight after tax from 1 April?

Couples in which both people qualify will receive $854.08 after tax (assuming the tax code M) a fortnight from April 1.

Sign up for Money with Susan Edmunds, a weekly newsletter covering all the things that affect how we make, spend and invest money.

Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.

– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand