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KiwiSaver News: How will Inflation affect First Home Buyers?

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Inflation is a term used to describe a rise in average prices through the economy. Inflation also means that the value of money subsequently drops as a result of inflation. With the rises in inflation of the third quarter, New Zealand saw the Consumer Price Index rose to 4.9%. ASB’s team has reported a few factors that are driving higher inflationary pressures. Most of the lift in inflation over the previous 12 months have been internationally sourced (seen below). Recovering global economic demand has also increased commodity prices. In contrast, disruptions within the worldwide supply chain have caused cost-push inflation. The Reserve Bank has stated that there isn’t much they can do about international and globally sourced inflation but will continue to monitor and react to the impact on New Zealand wages and price-setting behaviours.

Increasing inflationary pressure is causing some central banks to start reducing the amount of support they would give by usually lowering interest rates to stimulate the economy. Others are assessing these trends as largely transitory and maintaining current levels of support. This may have some effect on homeowners and the increase in loan rates to come.

How does this affect and my KiwiSaver account?

As a KiwiSaver first home buyer, this may have some effect on your decision to purchase as well.

ANZ has lifted their one-year “Special” home loan rate for people with 20 per cent more equity to 3.34 per cent and changed their two-year fixed rate to 3.99 per cent. Last year, March 2020, these rates were only at 3.05 per cent and 3.35 per cent, respectively. This may cause first home buyers to wait until later than initially planned until they start looking for houses. With Covid-19 still rampant as of November 2021, we may see fewer people borrowing to buy homes until interest rates drop back down or inflation deflates. As we see on the graph below, the higher volatility borrowers may be more vulnerable to impacts in the market.

As we have seen with the cost-push inflation, has substantially increased the rates for these first-home buyers. Even if the Reserve Bank starts actions to tighten the effects of inflation. It will still take some time for an impact to be seen for the next while. The market has also been quite resilient throughout the lockdown, as we have seen from 2020 and 2021, so we can also assume that the effects of Covid-19 or its variants won’t have too much of an impact on any inflationary issues in the coming months.

Who is being affected the most?

With rising costs, everyone will be affected differently. The most affected by these changes are people with lower incomes and renters, who do not gain from soaring house prices. For those looking into buying their first home, weigh up if right now is the right time for you. Talk with your trusted financial advisor to see what to do and how to plan for the coming months.

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