‍A Familiar Surprise?

Change is a constant in life, but some things seem oddly familiar. In the midst of an election season, Winston resurfaced – a surprising twist that left me both bewildered and intrigued. While Winston's reappearance doesn't directly relate to interest rates, it's hard to ignore his presence in the current landscape. Perhaps my own surprise at his return is what's truly disconcerting.

Unanticipated Stagnation

A year ago, all indicators pointed toward interest rates beginning to decline by now.

However, reality paints a different picture. Inflation has proven stubborn, employment remains relatively high, and despite facing difficulties, New Zealanders are finding ways to persevere. At Velocity, we've been assisting residential property investors in navigating these turbulent times brought on by recent changes, including increased mortgage rates, loss of interest deductibility, higher operating costs, and stricter lending criteria from banks.

OCR Stays Put

Recently, the official cash rate (OCR) remained unchanged. The message was clear: it will stay put for an extended period, with a hint that it may start to decrease around this time next year. The Monetary Policy Committee's discussions highlighted that while inflation is expected to decline within the target band by the second half of 2024, employment remains above its sustainable level, and employment intentions appear stagnant, with labour shortages easing.

As part of their strategic approach, the Committee agreed that interest rates might need to remain at a restrictive level for an extended period to achieve annual consumer price inflation within the 1 to 3% target range and support maximum sustainable employment.

(Reference: Official Cash Rate Remains)

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Mortgage Rates still on Steady Ground

What does this mean for mortgage rates? Currently, rates are relatively stable, with minor fluctuations but no significant changes. Banks aren't aggressively competing for business, resulting in steady and consistent rates. However, inflation seems far from under control, as evidenced by rising fuel prices. Whether the Reserve Bank is satisfied with the current unemployment levels remains to be seen.

(Reference: Inflation Data)

Making Informed Choices

So, what's the impact on refinancing mortgage rates? The answer to that question depends on your individual circumstances, so it's crucial to consult with your financial adviser. We've noticed a growing interest in fixed-rate terms ranging from 12 to 24 months, which seems like a reasonable approach given the uncertainties of the moment. A 36-month term may feel distant, but options like 12, 18, or 24 months can help manage risk and reduce stress during these uncertain times, especially with Winston's unexpected return adding an element of unpredictability to the mix.

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Graham.

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About Graham

Hi there, I’m Graham and I started Velocity Financial nearly 20 years ago. I had for many years been running youth development programmes for The Salvation Army and I liked the idea of continuing to help people thrive in other areas of their lives. It started with helping first home buyers, and I now work mostly with business owners. This is around planning, lending, and managing risk for them and their staff. I’m passionate about community and connecting those in need with opportunity. I’ve been very privileged to do this in my previous career, now in my business and also for 20 years as a Trustee of the Te Aro Health Clinic. Our clinic delivers high quality health care for Wellington's most vulnerable and I'm very proud of the fact that Te Aro is now an integral part of Wellington City Health system. I work in New Zealand's two best cities, Tauranga and Wellington. In Tauranga I swim, bike and run (maybe YOGA if I'm feeling particularly aware!) and in Wellington I mostly seem to buy my adult children dinner and drinks.

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Graham Goodisson (FSP95428) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Graham’s disclosure statement on our website.