In early April, there were many discussions following the interest rate market. The OCR was increased by 0.50%, which has NZ currently sitting at 1.50% (to note: this is the first time in over 2 decades, where the OCR was increased by more than 0.25% in one review).
It is without a doubt that this will impact the interest rate market, with many banks already increasing their floating rates, and some increasing their fixed rates too. Upon comparison of this month’s rates vs last month’s rates – you will notice a staggering difference in the interest rates offered. (Secure a better interest rate by getting in touch)
The RBNZ is working to stabilize and curb the inflationary pressure, whilst trying not to go too far and negatively impact other parts of the economy such as housing & employment. With the rising costs of goods for Kiwis, inflation is major concern and certainly one that cannot be allowed to spiral out of control. However, the rise in interest rates slows the cycle of money - forcing less disposable income for property owners (investors and homeowners alike).
The days of low interest rates in 2020 & 2021 are certainly behind us; borrowers are now turning to longer term interest rates to allow for more security and certainty in this unpredictable rising interest rate environment. Several commentators out there don’t expect this to be the last of the OCR increases, with many forecasts expecting the peak to be late 2023 nearer the 3% mark – double what we’re currently at.
(We don’t recommend waiting for the interest rates to get higher, get in touch today and let us find & secure you a lower rate while you can!)
SECURE LOWER RATES WITH US
On the construction side of lending, there were a few bank products (such as ASB and Sovereign’s ‘Back My Build’ and ANZ’s ‘Blueprint to Build’) that were extremely attractive for those looking to build or purchase new-build properties. For those looking to utilize these bank products, we sadly announce – ASB has officially ended their campaign for new approvals, and anything approved currently needs to be settled by July. ANZ’s product is still available, but we predict that they too are going to end this product shortly.
In the extremely low interest rate environment since COVID-19, we saw many borrowers fixing their rates for only 12 months (many of whom are still on lower short-term interest rates) the last of which somewhat ended in July 2021. Many of these borrowers will be coming off interest rates at circa 2.19%, and now interest rates being at higher levels – it is concerning as to how this may pan out.
Historically, most kiwis would usually opt for a 2-year fixed term option giving them some security at a reasonable price. If comparing this with the 1-year rate they were used to (example: ANZ’s 5.15% standard rate on their 2-year offer) this is more than double their interest costs; on a $1,000,000 mortgage this is an increase of interest costs from $21,900 p/a to $51,500 (an increase of $29,600). Many kiwis simply do not have an additional $569 p/w as disposable income to put into their mortgage.
When considering interest rate fixes, it is important to note other cashflow factors such as how changes to interest deductibility will impact your cashflow (we advise you discuss further with your accountant) and getting an understanding of your interest-only periods and when these may be expiring. (This may apply to investors more, however it is still worth being aware of!).
PLEASE NOTE: This is the first time in a long time, we are experiencing quite a large variance between what certain banks are offering for interest rates, versus others. For this reason, we urge our clients to move quickly and look at reviewing your current lending to determine if there are alternative offers which may be better for you – as this will have a huge impact on YOUR CASHFLOW.
Here at Kris Pedersen Mortgages & Insurance, we can assist you in finding the best rates and determine whether the move is worth your while (checking the cost of moving banks, solicitor bills, claw backs from your current bank & break fees if applicable) – we do all the hard legwork for you.
Rates are changing on a weekly basis, get in touch with us asap and we’ll help you move forward & lead you out of this uncertain time!