Inequality and housing affordability are only going to get worse as interest rates drop further, an economist has warned.
The Reserve Bank aggressively cut the official cash rate from 1 to 0.25 percent in March in an effort to keep money flowing as the impacts of the coronavirus pandemic started to be felt on the global economy.
It's stayed there ever since, and some are tipping it will go negative next year.
Heartland Bank on Monday announced a one-year fixed mortgage rate of just 1.99 percent, about half a percent lower than the big five.
"All power to the consumer - it's great to see a domestic player throwing one across the bow," economist Cameron Bagrie told The AM Show on Tuesday. He's one of the economists picking interest rates to go negative soon.
"Mortgage interest rates are headed lower. The Reserve Bank is being pretty firm in their desire to get borrowing costs down. They're offering the banks cheap funding."
There is a catch to Heartland's record-low offer - buyers need a 20 percent deposit, which at current Auckland prices, will likely be a six-figure sum.
Bagrie says this will lock many people out, who'll be stuck renting - which is now likely more expensive than being a homeowner.
"Say you're borrowing half-a-million, which a few years ago seemed like an awful lot of money, even if you're paying 3 percent - above where the market is at the moment - what's it going to cost you? $15,000. If you're paying 2 percent, it's going to cost you $10,000. Somewhere between $200 and $300 a week. You can't rent a place for between $200 and $300 a week."
The costs he's talking about is just the interest. It costs more than that to pay a mortgage of course, but the rest of the money isn't lost like it in when you're paying rent, it goes on the principal - and owners will also likely enjoy capital gains when they sell, tax-free.
"Sad thing about this, income inequality and housing affordability - the two big social issues of our time - well, they're going to get worse."
New Zealand house prices have risen despite the deep recession, Kiwibank senior economist Jeremy Couchman saying in September it was "like it never happened".
The new interest rates on off will only "stoke the fire", said Bagrie.
"We're going to see more and more kids hitting up the bank of mum and dad."