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Well, that was a bit exciting leading up to the last Official Cash Rate announcement.
I''ll just to bring you up to speed, in case you weren’t sitting on the edge of your seat on February 28th for the last Reserve Bank Official Cash Rate announcement.
Up until a few weeks before this announcement, all the predictions had been that it would be “business as usual”. The Reserve Bank would leave the OCR where it was, and we would be waiting for a number of months when inflation would be under control, and the OCR would start to drop, with Mortgage Interest Rates following. But then, the economists at ANZ put the “cat amongst the pigeons” and predicted the OCR would go UP. Well, that got everyone in a spin, with people scrambling to refix their home loans, and it seems this prediction even had an impact on the wholesale money markets, where interest rates spiked.
The country was on the edge of its seat come February 28th. And then the Reserve Bank announcement: No change. Mic Drop echoing in an auditorium of unoccupied nothingness.
According to the Reserve Bank, everything seems pretty much under control, the next move should be down, and that is likely to be early to mid-2025. (A quick note: the “markets” and most economists are still picking the OCR to drop slightly earlier than this – we will see who has the better analysis in 6 months’ time, The Reserve Bank or those who are observing the Bank)
It was a very welcomed anti-climax for most, particularly those of us with Home Loans.
Since then, the headlines (well, perhaps the by-lines on the second page of the “business news” section) have been that Interest rates have started to drop. I think that is a little misleading.
Yes, it is true that the advertised rates the main NZ banks are offering have nudged down (by perhaps 0.1%). This doesn’t mean you will be getting cheaper rates than you did a month ago. Why is that, I hear you ask?
The reason is that banks had already been offering lower rates than those advertised.
As an example, let’s pick on the 1-year fixed Home Loan rate. For the last few weeks, most banks have been negotiating deals of around 6.89%. The by-line news in the last few weeks is that 1-year rates have dropped. ASB, for example, on March 11th, dropped their 1-year rate from 7.29% to 7.24%.
For those of us negotiating rates every day, this isn’t really news as we have continued to secure 1-year rates of pretty much 6.89% before and after these latest advertised decreases. What we are eagerly looking for is if there is a drop in the rates we receive when we enter into negotiation on behalf of our clients. The good news is that in the last week or so, there are small signs of this.
Banks have already been offering lower rates than those advertised.
So, what to do when your fixed rate is about to roll off? Despite the rather significant build-up in the previous paragraphs, my rather dull conclusion is that nothing has really changed from my recommendations in the last few months. Most of our clients are still fixing for 6 months or 1 year, and that makes sense to me. Yes, they are slightly higher rates than the longer-term fixed rate, but it does give you a chance to refix in 6 months or 1 year and perhaps take advantage of lower rates, with only a small (and getting smaller) risk of those rates having increased.
We are at the time in the cycle where most Mortgage Holders have been stung by the increased rates. From here on, it seems Home Loan holders will be holding the course with their 7% interest rates, and it won’t be long when I am encouraging them to accept the lower rates that will be on offer but keep the payments the same - as that is when major gains in terms of how fast you can pay your loan off will be made. Until then, hang in there. We are getting through this, and I don’t think it will be long until the Interest Rate news starts to improve!
Before you make a decision on interest rate and click that button on your bank app, talk to your adviser first - as your situation is unique. Your Home Loan strategy needs to be set with your set of circumstances in mind.
Brendon.
About Brendon: Hi, I'm Brendon, one of the owners and advisers at Velocity Financial. I have been giving advice on mortgages and insurances at Velocity for around 15 years, and it is great to be able to work with people to achieve their financial goals. Prior to giving money advice, I worked as a youth worker and managed teams for a not-for-profit organisation. I live with my wife and one of my sons (the other one only stays when he needs food) in Berhampore, and if I'm not talking revolving credit accounts, I can be found running the trails of Wellington.
Disclaimer: Brendon Ojala (FSP119244) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Brendon’s disclosure statement on our website.
Always get professional advice
The information shared in this post is meant to be general guide to support you on your journey. When making important decisions about your finances, we encourage you to seek independent financial advice first, tailored to your unique situation. As well as talking with a financial adviser, make sure you talk to your lawyer and accountant too – together they'll help you find the best solution for your specific situation. Our knowledgeable financial advisers are here to help. Check out our website for the details about our financial advisory services in our disclosures https://www.velocityfinancial.co.nz/disclosure-statement.