The Current Financial Position Explained – Sept

OCR Rate Remains Steady

Amongst a sea of speculation, the Reserve Bank has decided to keep the Official Cash Rate at 1.0 percent. This decision is based on the fact that the last drop in the OCR seems to have had the desired impact for now.

“Stephen Toplis, head of research at BNZ, said the announcement was “almost identical to what we had anticipated”.

Toplis added: “The Reserve Bank governor was on record as saying that the drop of 50 basis points allowed them to get ahead of the market, and reduced the need for more cuts later … They have maintained an easing bias, and our view is that November is the more likely timing for the next move.” [source]

As you can see, the Reserve Bank has not ruled out further reductions to the OCR in the near future. Employment is around its maximum sustainable level, inflation is low, and the global demand for NZ products is dampening. Business confidence is also low, impacting investment decisions. All of this points to a further drop in November, but we will have to wait and see what the outcome is.

Interest Rates

Interest rates continue to fall, with banks all offering 2-year rates below 3.5%. Again, rates have hit an all time historical low. But why do they continue to fall?

“Global long-term interest rates remain near historically low levels, consistent with low expected inflation and growth rates into the future. Consequently, New Zealand interest rates can be expected to be low for longer.” [source]

It really has never been a better time to lock in fixed rates for your mortgage. If it has been some time since you have reviewed it, or your fixed term rates are coming up for renewal, then don’t hesitate to get in touch. I can help you secure the best rates, that could even be better than the advertised ones.

KiwiBuild Reset

The Kiwibuild scheme is officially over. The plan to build 100,000 affordable homes has now been scrapped. But, it is not all bad news. The government has reset the policy with some positive changes.

The change that is likely to have the biggest impact is the reduction of the deposit required for a KiwiSaver HomeStart loan. It is now known as the First Home Grant and first home buyers will now only need a 5% deposit, as opposed to the previous 10% requirement.

“Many commentators, such as REINZ chief executive Bindi Norwell, have welcomed the move, saying it will significantly help a number of first home buyers. Norwell says that saving for that initial deposit is often the biggest hurdle to getting on the property ladder.” [source]

Westpac has confirmed their commitment to the Welcome Home scheme, along with Kiwibank and some other small lenders. Many hope the rest of the Big Four banks follow suit and adopt the scheme.

While the deposit aspect is now easier to meet, banks will be more stringent with their servicing criteria to ensure borrowers can afford the repayments. So, you will still need to have your finances in good order, even with the regulation changes.

If you are considering buying your first home, it could be time to have a look at your finances. Get in touch with us here at Mortgage Suite and we can check your affordability. There really is no better time to check your position with the market picking up for Spring and the interest rates so low!