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The Current Financial Position Explained – August 2019

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Historic OCR Cut

Economists had been predicting the Reserve Bank would cut the Official Cash Rate (OCR) in August. But none had predicated that the cut would be quite so much. The general consensus was that the OCR would be lowered by 25 basis points. However, the Reserve Bank shocked everyone when they cut the rate by 50 basis points instead, bringing it to a historically low 1%!

This is the biggest cut we have seen since March 2011. We knew the cut was coming as the result of ongoing slow economic growth and global concerns. But why was it so much?

It seems that the Reserve Bank has chosen to get on the “front foot” and take drastic action now in the hopes of boosting the economy. Many believe this drastic action has already started working. “There has been a massive drop in the rates that really matter for the economy and those are the fixed mortgage rates. The Reserve Bank has engineered that by convincing people that they are going to keep interest rates low for a long time.” – Westpac’s Dominick Stevens

But that does raise the question of where to from here? Will we see further cuts in the future? The prospect of future cuts is highly likely. Many economists are expecting the OCR to fall below 1% as early as the end of this year or in 2020. We will have to watch this space!

What Will Happen To Interest Rates?

With the OCR plunging, what does that mean for interest rates?

Kiwibank economist, Jarrod Kerr believes “If things get worse [the Reserve Bank] could deliver another cut in the next meeting, if not it will be a 2020 story. The main message here is rates will be lower for much longer and there’s a good chance interest rates will continue to fall over the next 6-12 months.”

The banks have already reacted, slashing both fixed and floating rates. All banks have floating rates between 5.15% and 5.3%, and their fixed rates are all 3.75% or below for one and two-year options. We can see the impact of the slashed OCR already. It seems lower interest rates are definitely here to stay for a while yet.

Property Market Update

“One outcome of increasingly lower interest rates – and the concurrent search for yield – will be that New Zealanders will, once again, start looking to property as an investment, Stephens added.

I am absolutely of the view that the housing market will respond to these low interest rates, despite policy constraints like the foreign buyers ban. So I think we are looking at about 7% growth over the next year.

If it does respond, the first thing we would see is an increase in sales and there is tentative evidence of a pick-up in sales now. But we will see over the next six months.” – Westpac’s Dominick Stevens

Another thing that is boosting the prospect of sales is, according to a recent survey conducted the low interest rates are changing the affordability of New Zealand housing. Income affordability is improving, median house prices are increasing at a slower rate than last year, mortgage interest rates have declined by an average of 0.44 percentage points, and salaries have increased by 2.8% on average.

All of this adds up to positive news for the property market. So if you are considering a first home, upgrading from your current home, or investing, then now could be the time to do it! Get in touch with us here at Mortgage Suite, to see what your options are.

The Current Financial Position Explained – July 2019

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The OCR Could Fall Further

You may remember that last month the prediction from leading economists was that the OCR was to remain constant. Well, this month that has all changed. In fact, the new prediction is that the rates will fall further in both August and November.

Westpac, ASB and ANZ are all predicting that the Reserve Bank will lower the Official Cash Rate in both August and November. Westpac chief economist Dominick Stephens, says the “domestic economy has clearly slowed further than anticipated”, and the slowdown will prompt the RBNZ to take drastic action. [source]

The Reserve Bank’s predicted decision is thought to be because of lower business confidence, a rise in the exchange rate, and the global economic position. Previously, it was thought that the economy would pick up in 2019, but that has not proven to be the case.

These changes are expected to impact the housing market, causing it to slow even further and also for house prices to rise. It could mean that now is a great time to explore your mortgage options. Get in touch with me today to check in on your financial position.

Current Mortgage Rates

Just when we got over the excitement of mortgage rates being below the 4% threshold, the major banks have taken them even lower.

BNZ was the first to announce a new 2 year fixed rate of 3.79% for owner-occupied houses, which ASB, ANZ, and Westpac quickly matched. The great mortgage price war of 2019 is showing no signs of slowing just yet.

At this point, it is hard to say if mortgage rates will drop any lower. It will just be a case of waiting to see what the Reserve Bank decides to do with the OCR. If the OCR does drop as predicted, then mortgage rates could also lower comparatively.

With rates plummeting, now is a really great time to check that your mortgage is still working for you. If it has been a while since you last reviewed your rates, then a mortgage review is a good idea. You could be saving money on your repayments simply by restructuring your loan or fixing at a new interest rate. We can help you work out what is best here at Mortgage Suite.

Potential Change To Servicing Rates

We often see the New Zealand financial market take their lead from what happens in Australia. Recently, Australian banks have had their serviceability rates cuts by APRA. This could mean that we see a loosening of serviceability criteria here in New Zealand too.

What does that mean?

It means that financial advisers are hopeful that more people will become eligible for finance if the relaxing of the serviceability tests does go ahead.

Obviously, it won’t mean that everyone will eligible for a home loan. There will still be restrictions in place to ensure the borrower can comfortably service the loan on their existing income. Some people will still face hurdles when it comes to the bank’s criteria. But it might mean people that are on the cusp of making a deal work in the current conditions could get it across the line.

Only time will tell if New Zealand will follow Australia’s lead on this one.

The current economic conditions have really made changes in the market. It means that great rates and structures are available to new and existing borrowers. If you have not reviewed your mortgage in a while or you have been thinking about getting on the property ladder, now is the time to try.

And we can help you do it here at Mortgage Suite. Get in touch with us today to check your financial position and what your next steps might be.

The Current Financial Position Explained – June 2019

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Every month it seems we are writing about a new low mortgage rate. And this month is no exception!

The rates have continued to drop to unprecedented lows. Every bank has some kind of an offer on the table that is under the 4% threshold.

The big four – Westpac, BNZ, ASB, and ANZ – are all offering a rate of 3.85% for 2 years or 3.85% even for 3 years. Kiwibank and TSB also have interest rates under the 4% mark too.

Basically, there has never been a better time to review your mortgage. If you haven’t looked at your rates in a while, then you could be making some big savings by simply tweaking the structure or interest rates. If you are interested in knowing what your position could look like, then give us a call here at Mortgage Suite today.

Will The OCR Move Again?

No one has a crystal ball to predict the exact future, though it would be nice! However, by watching the trends around the world, reviewing history and trusting their experience, economists can make a pretty clear prediction on what might happen.

So, will the OCR drop even further?

The economy and housing market are only just starting to see the results of the last rate cut. So, it is not 100% certain whether that action alone will have the desired result on the economy that the Reserve Bank was looking for.

However, in a recent survey of economists by The New Zealand Mortgage Mag, 85% of those surveyed believe that the “central bank’s Monetary Policy will opt to keep the OCR at its current record low.”

They are also predicting further cuts to the OCR, potentially in August and November of this year because of the global position. “Amid escalating trade tensions between the US and China, and falling GDP in major economies, leading economists say the bank could point to increased risks to the domestic economy.” [source]

We can only watch and wait to see what will happen, and what it will mean for the economy and interest rates.

First Home Buyers Building Market Share

While there is still a lot of commentary on housing prices being too high, it doesn’t appear to be stopping first home buyers. They are steadily building their market share. “First home buyers continued their strong streak in April borrowing $964 million, compared to $868 million in April last year.” [source]

This could largely be a result of increased use of the bank of mum and dad! In fact, “the bank of mum and dad lent an estimated $71 million last year, according to a presentation from New Zealand Trustee Services at last year’s Financial Advice New Zealand conference.” [source]

Westpac recently conducted a survey that shows “the older generation are willing to act as guarantors, quasi-lenders, and gift-givers for their children. About 55% would be prepared to gift money, 21% would offer a loan with interest, and 18% would buy a property outright for their kin.” [source]

Despite the strict lending criteria of the banks, there is still an opportunity for first home buyers. Especially if they are able to get help from their parents. Get in touch with us here at Mortgage Suite if you would like to know how this kind of lending might work for you.

Where Should I Get Advice?

Canstar have also conducted an industry survey, and they discovered “only 27% of New Zealanders view their bank as a place to get good financial advice.” [source] This seems to have come in the wake of the Australian Banking debacle, as well as the investigation and sanctioning of some of the banks here in New Zealand.

So, what does that mean? Who can you trust for your financial advice?

The answer is simple, a qualified Financial Advisor like the team here at Mortgage Suite. We ensure that we provide you with the best advice for your individual situation. The great thing is, any decisions regarding your finances rest with you. That means you are always in control and can choose the option that suits you best.

Get in touch with us today for a free no-obligation chat about how we might be able to improve your financial position.

What The Lowering Of The OCR Means For You

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As the Reserve Bank deliberated over a decision, we all sat waiting with bated breath.

What would the outcome be?

On Wednesday 8th May, we got the answer. The Official Cash Rate (OCR) was officially lowered to 1.5%.

Let’s look into why the Reserve Bank chose to make the decrease, what it means for you, and if the experts think it will drop any further.

Why The OCR Was Cut

The main reason behind the decision to lower the OCR was to strengthen New Zealand’s economy.

Since mid-2018, global economic growth has slowed. This has seen foreign central banks ease their lending policies to promote the prospect of growth. This move is simply the New Zealand Reserve Bank following suit. By lowering the OCR and giving greater lending possibilities, it is thought it will give our economy the boost it needs.

Recently, New Zealand has seen reduced population growth, the softening of house prices in some areas, ongoing low business confidence, restrained investment, and employment nearing maximum sustainable level.

All of this means the OCR cut was needed to keep employment and inflation consistent. This will help the country achieve the right objectives and gives a balanced outlook for interest rates.

What It Means For You

Unfortunately, the cut is expected to lead to a drop in our dollar. That could mean higher prices on key items that are imported into New Zealand, namely fuel.

But the news is not all bad. When it comes to interest rates, the news is good. Major banks have already responded with a reduction to floating fixed term interest rates. Lower mortgage rates obviously mean that you have to pay less interest when borrowing for your home. This provides a great opportunity for new home buyers to enter the market and for existing mortgage holders to pay more off their principal debt.

The sub 4% mortgage rates which first made an appearance last year look to become a regular long term feature in the market. The major banks all have 2 or 3 year rates below the 4% threshold.

But, lower mortgage rates also mean lower deposit interest rates. This could be bad news for people with term deposits and who rely on compounding interest rates. Economists fear that a lower return on savings could cause people to explore riskier investment options instead. If you are considering other investment options, we strongly recommend seeking solid financial advice to ensure it is the right move for you.

Will It Fall Further?

The jury is out on this one currently. Even the Reserve Bank are 50/50 on whether or not another OCR cut will happen. It will depend on whether they are satisfied with growth and inflation. If they feel the economy needs another boost, the rates could fall even further later in the year.

Many of the banks believe that the rate will be cut further this year in order to have a meaningful impact on the economy. They feel this cut is just the first step and another will be taken later in the year. They do feel that the Reserve Bank will heavily consider whether another cut it required before rushing into a decision though.

However, Westpac economists feel that this cut, coupled with the decision to rule at a Capital Gains Tax will be enough to accelerate the housing market and recover the economy. They are expecting a big boost to the property market. Because people will be able to borrow more at lower rates, they feel it will encourage movement in the housing market and house prices will rise again.

With new options out there in the lending market, it has never been more important to seek professional advice from a Financial Adviser. Here at Mortgage Suite, we are happy to help you explore the options available and what is the best course of action for your individual situation. Get in touch with us today.

Current Financial Position Explained – April 5th

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The OCR

The Official Cash Rate was reviewed last week. As I explained last month, the OCR, or Official Cash Rate, is an interest rate set by the Reserve Bank. This rate affects all other interest rates offered by the various lenders in New Zealand. It is effectively the wholesale price for borrowing or lending money in New Zealand. It is set by the Reserve Bank to ensure that there is price stability for Kiwis.

This rate is reviewed 7 times a year to ensure that it is kept up to date with the current position of the country. The OCR is currently sitting at 1.75% and is expected to stay the same in this review. The position is that the rate will remain on hold for this year and next with an expected change in 2021. At this stage, it is not known whether that change in 2021 will see it go up or down.

So, what does that mean in real terms?

It will probably mean that we are going to enjoy the low-interest rates the banks are offering for a bit longer yet!

Interest Rates

Concerning interest rates, ASB have just reduced their 3 year rate to 3.95%, I believe other banks will follow.

Some banks are even offering rates below the 4% threshold or have a price matching policy to give borrowers the best deal. There are criteria that apply to obtain those rates, but the stipulations are reasonably easy to meet. That means most people will be able to enjoy amazing rates whether you are refixing your mortgage or looking at new borrowing.

If you are considering buying, topping up your mortgage, or renovating, then now could be the time to do it with such attractive rates on the market. Just remember to always take solid financial advice to ensure it is the best decision for your budget.

Using Financial Advisors

You may remember that last month there was a huge amount of backlash in the Australian market concerning banks and mortgage advisors. That kicked off a lot of talk here in New Zealand about the relationship between financial advisors and the Australian owned banks – ASB, ANZ, BNZ, and Westpac.

Currently, mortgage brokers are able to offer their services free of charge to the consumer market as they are remunerated by the various lenders when a mortgage is secured. There was talk of introducing a commission payable by consumers to keep fees transparent.

The Big Four banks have indicated they see huge differences in the New Zealand market compared to the Australian one. They have all voiced their support of mortgage brokers here in New Zealand.

BNZ said advisers play “an important role in enhancing competition in the home loan market. We will seek opportunities to learn from the Australian experience as we look for better ways to exceed our customers’ expectations. BNZ supports mortgage broking as an option for New Zealand home buyers.” (source)

Basically, it means that you can still enjoy the same support and advice you have been receiving from your mortgage broker for free. If you don’t have a reliable mortgage broker that you can call on, then please feel free to get in touch with us at Mortgage Suite. We would be more than happy to help with any queries you might have.

The Current Financial Position Explained

Posted on by mortgage_admin

The OCR

The OCR, or Official Cash Rate, is an interest rate set by the Reserve Bank. This rate affects all other interest rates offered by the various lenders in New Zealand. It is effectively the wholesale price for borrowing or lending money in New Zealand. It is set by the Reserve Bank to ensure that there is price stability for Kiwis.

This month, the Reserve Bank indicated that the OCR will remain the same at 1.75%. It is expected to remain that way for the rest of 2019 and 2020. A review is scheduled for 2021 and at this stage, it is hard to say whether it will go up or down at that point.

So, what has caused the lack of change?

It is down to the fact that New Zealand’s economy is doing well. Employment is seeing continued growth, inflation is at a low level despite the global weakening. Low interest rates and government spending are expected to see a growth in New Zealand’s GDP this year.

What does it mean for the current interest rates?

Current Interest Rates

As we mentioned last month, the current interest rates are at an all time low. In fact, the average two year fixed interest rate reduced from 4.33% to 4.25% between December and January but we are able to 2 year rates as low as 4.05%pa. This is the second lowest rate since data was first collected in 2002 (the lowest rate was 4.23% in October last year).

While the media are reporting that we are moving into a buyer’s market, there has been no evidence to suggest a significant downturn in the sale prices for houses. However, with interest rates at an all time low and good lending confidence form the banks, property is becoming more accessible for people.

So much so, that first home buyers are continuing to grow their market share and edging closer to investors in the market. In January 2019, first home buyers accounted for 17.3% of all lending, and investors 17.9%. Could the current conditions finally be making property more affordable for the average Kiwi family?

The Field Of Financial Advice

There has been a lot of negativity surrounding financial advice in the news after the Australian banking debacles and the reprimand of life insurers overcharging consumers. This has inevitably had a flow on effect to the field of financial advice with the field under intense scrutiny.

But, all of this doesn’t change the fact that a mortgage broker can really help you with your finances. A DIY approach to your mortgage is not the answer. It will mean a huge time investment and how do you know if you are really getting the best deal?

By comparison, Mortgage Suite have professional relationships with all of the major (and minor) lenders in New Zealand. That means we have access to information that the general public doesn’t. It means we can use our knowledge of the options available and our expertise to ensure you get the best deal for your particular circumstance.

If you would like to discuss anything about your financial position then we are here to help. That could be preparing to buy your first home, upgrading your current home, restructuring your mortgage, or simply refixing your interest rates. Get in touch today for honest advice you can trust.

The Latest News on Mortgage Rates

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Why Are The Rates So Low?

By the end of 2018, home mortgage rates dipped below 4%, the lowest recorded rate since the 1940s! Rates are still hovering around that 4% mark with many lenders offering even further sweetners at various times.

So, why are rates so low?

Many events have combined to bring interest down to the current level. The influx of springtime and summer house sales, the steady OCR rate, the steady demand for houses in the major centres.  The economy remains strong – with low unemployment and inflation rates.

This adds up to lending confidence. The banks are willing to lend to people who are able to comfortably service the repayments. With low-interest rates, your monthly repayments are naturally much more manageable.

What Does It All Mean For You?

With existing mortgages, it means that now is the time to make sure you are getting the best deal. No one wants to pay more interest than necessary, and your current mortgage could have you paying more than you needed..

Indeed when was the last time you reviewed the structure of your mortgage?

There are many different “products” out there in the market – from fixed and floating options, to offset accounts, and cashback deals. If you haven’t reviewed the structure of your current mortgage, then get going and do it!

You could see some significant savings, or even reduce the term of your mortgage which would be a big bonus allowing you to retire earlier if you wanted to.

If you are buying your first property then this the time for you to to get it right and the right mortgage is vital for a good start,

The banks are lending with confidence, at that means you could make significant headway on your mortgage payments while the rates are so low.

So don’t hesitate any longer. Now is the time to act and lock in all the advantages being offered.  These great conditions may not last for ever.

What Future Holds

Without a crystal ball, it is hard to predict exactly what the future might hold. Things can change in New Zealand and worldwide over the next two or three years and the results may not be so favourable they are now.  The less-than-4% rates are not expected to last for ever. All the banks offering these specials have put a definite deadline on when these special rates will continue to remain available. Maybe this may not happen for the next 2-3 and rates could remain steady but in real estate terms that is not very long.   It is highly unlikely that they will drop much further in any event.

While the rates are low, this is the time to consider buying your first home or renovations to your current home. What ever you do, it is wise to remember that whatever the interest rates are, you will still need to pay back any money you borrow. So, you want to ensure you are making sensible decisions and not stretching your finances too much.

Now is the time to review your finances and get some solid financial advice. Get in touch with us here at Mortgage Suite. We can help you to see what options are available for you and how you can best arrange your future. Drop us a line today for a free no-obligation chat.

Manage Your Christmas Finances So You Don’t Jeopardise Your Borrowing Power

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Keep Your Christmas Spending In Check

Short term debt can kill your chances of being approved for a mortgage. One of the biggest threats at this time of year is running up large amounts on your credit card.

The cliche that it is ‘the thought that counts’ is so relevant at this time of the year. You don’t have to break the bank when buying gifts for your friends and family.

Remember that holiday spending does not have to be expensive. People do not need top of the range gadgets, gourmet foods, top shelf drinks, or business class flights to have a good time. Instead, it is about being thoughtful and creative. Choose the foods everyone loves, bring out the traditional decorations and carpool for family Christmas events.

Some of the best gifts you can give don’t cost a lot of money. Think about the person that you are buying for, what do they really like? What can you buy them that is meaningful, but within budget? Also, think about who you are buying for. Of course, you need to get gifts for the meaningful people in your life, but not for everyone you know.

 

Do Not Go Beyond Your Means

You should always try to stay within your means during the holiday season. There is a lot of opportunities to spend like crazy, but it doesn’t mean that you should take those opportunities.

The best thing to do is to set yourself a budget for your holiday spending. That means a budget that includes all of your potential outgoings – gifts, food, travel (if applicable), decorations, and general spending. Don’t simply pull numbers out of the air, really have a look at what you can afford to spend. Then, when you have the budget… stick to it!

Be realistic about your spending decisions and don’t feel pressured to spend just because everyone else is.

Keep Your Borrowing Power Up

As I mentioned above, one of the first things that a lender will look at when assessing your financial position is your short term debt.

Basically, all they are trying to work out is whether you are a good investment or not. Whether you will be able to make the loan repayments if they go ahead and lend you the money. Large sums on your credit card, personal loans, finance agreements, or lots of hire purchase arrangements will give the impression you are not good at managing your money.

Avoid putting yourself into debt this Christmas. If you can’t afford it right now then don’t buy it.

A lender will also check your spending habits. So, think very carefully about what you are buying even if you have the money available in your accounts. Lots of unnecessary spending may indicate to a lender that you will buy luxuries instead of paying back your loan.

While short term debt and big spending may not entirely prevent you from obtaining a mortgage, it can impact the amount you are able to borrow. A lender will want to ensure you can service the loan they give you. If you have a lot of other outgoings to cover then it can lower the amount they are willing to lend.

To wrap it up, my advice is to keep your holiday spending to a minimum this year. That way, you will give yourself the best chance of qualifying for a mortgage when you are ready to buy a home, invest in a second property, or even to borrow for renovations.

If you have any queries about your eligibility to borrow for a mortgage, then get in touch with me here at Mortgage Suite today.

Buying Or Refixing? Why Now Is The Best Time To Examine Your Mortgage

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Buying Or Re-fixing? Why Now Is The Best Time To Examine Your Mortgage

Should I Buy Now?

So, should I buy a home now? The short answer to this question is yes. But only if you are in an appropriate position to do so. Even though the rates are low, you still need to be able to service the repayments without putting yourself into financial trouble.

Working with us here at Mortgage Suite will help you to understand what your borrowing power is and the kind of home you could purchase. You might be surprised at what is available for you if you are armed with all of the right information.

Why is now the time?

Well, the interest rates are at an all-time low. For some loan terms, they have dipped below 4%. That means you have to invest less into paying interest to your lender and more can go off the principal amount that you initially borrowed.

If you can afford to pay more than the minimum amount, then you can shave years off the term of your mortgage and save thousands of dollars in the process.

With government support, more leniency in lending from the banks and KiwiSaver first home schemes, there are plenty of ways you can get the help you need to reach the first rung of the property ladder.

Should I Re-fix My Mortgage?

If your mortgage rates are coming up for renewal soon then you should be clapping your hands gleefully, as you are about to secure a great rate. If you use the help of a mortgage broker, then it could be even greater than the advertised rates too!

But all hope is not lost if your rates don’t come up for renewal for a while. With rates as good as these, it can be worth exploring the option of breaking your current rate, paying the break fee, and fixing at a lower rate.

While there is the upfront cost of a break fee, you could save more money over time by having a lower interest rate. We can help you determine that at Mortgage Suite by crunching the numbers. We can look at the cost of the break fee and compare it to the long-term savings you would make with a lower interest rate and advise you accordingly.

In some circumstances, it is not worth the cost of the break fee, but you won’t know that unless we do the investigation first.

How Can I Get The Best Rate?

It takes a lot of time and energy to research the different interest rates offered by the main and second-tier lenders in New Zealand. After all, there are more than 20 of them! And, you will probably only be offered the rates advertised on their websites.

If you let a mortgage broker do the research for you, not only do you save time, but you could get a better deal too. Because of our professional position and the relationship we have with the various lenders, we have access to rates that are better than the ones you see advertised on the lending websites.

Sometimes the best deal does not only mean the lowest interest rate. You also need to take the structure of the loan into consideration. Depending on your personal situation, you may decide to fix your loan for a set period of time for certainty. Or, you may decide to have a portion on floating so that you can make extra payments without penalty. Or even have an offsetting account where your personal savings can decrease the amount of interest you will pay.

A mortgage broker can help you sort through all of the available options and choose the one that is going to work best for your personal situation.

So, if you would like to see what options are available for your current mortgage, or if you are hoping to secure your first mortgage, then get in touch with us here at Mortgage Suite.

We will save you time, stress and energy, and also secure you the best solution for your situation.

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