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What Is The OCR And Why Do The Reserve Bank Keep Raising It?

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What Is The OCR And Why Do The Reserve Bank Keep Raising It?

You are probably sick of seeing news article after news article announcing that the Reserve Bank has raised the OCR again.

After all, what is the OCR and what does it have to do with steadily climbing mortgage rates?

Let’s look into the answers to those questions now and take a peek at what’s happened in the world of home loans in the last month.

What Is The OCR?

OCR stands for Official Cash Rate. The Official Cash Rate is the interest rate that the Reserve Bank of New Zealand sets to influence monetary policy in the country. The OCR is the rate at which the Reserve Bank lends money to commercial banks. Therefore, it affects the interest rates that banks charge to borrowers and pay to savers.

The Reserve Bank reviews and sets the OCR periodically, typically every six weeks. The OCR is used to control inflation, stabilise the exchange rate, and support economic growth. When inflation is high, the Reserve Bank may increase the OCR to reduce demand and slow down the economy, and when inflation is low, the Reserve Bank may lower the OCR to stimulate demand and boost economic activity.

 

Why Does The Reserve Bank Keep Raising The OCR?

The Reserve Bank may raise the OCR for several reasons, but the most common is to control inflation. When the economy is growing strongly and demand for goods and services is high, there is upward pressure on prices. If inflation starts to rise above the RBNZ’s target range of 1-3%, the RBNZ may raise the OCR to reduce demand, cool the economy, and bring inflation back to the target range.

Inflation is currently sitting at 7.2% in New Zealand.

Kelleher, ANZ’s Managing Director for personal banking, says high inflation hurts people’s spending power, devalues their savings, and increases business costs, pushing up the cost of living.

“With this in mind, it is understandable the Reserve Bank is strongly hiking the OCR in an attempt to dampen inflation.” [source]

This is one of the main reasons that you see regular notifications that the OCR has been raised and that mortgage rates have been increasing so markedly.

 

Will The OCR Continue To Rise?

On 5th April 2023, the Reserve Bank surprised economists throughout the country by raising the OCR by 50 basis points to 5.25%. So, will it continue to rise?

“The RBNZ has given little away about what’s next for the OCR, but Davidson, Core Logic chief property economist, says it seems that there will be one more 0.25% rise on May 24, with the tightening cycle potentially ending there.

“That said, it’s still too early to sound the all-clear and suddenly expect housing sales volumes to pick up and house prices to find a floor,” he says.

“After all, new borrowers are still facing tough serviceability testing and a continued wave of existing mortgages are yet to be repriced to current rates of around 6.5%.”

He says these will remain challenges for the housing market for a few months yet – especially with the RBNZ wanting to emphasise that they’re not about to ‘go soft’ on inflation and suddenly lower the OCR anytime soon.” [source]

So, at this point, it looks likely that the OCR will rise again, but hopefully not at the rapid rate that it has risen in the last 12 months. If you have any questions about how these rises impact your current or potential borrowing, then it’s time to have a chat with a trusted mortgage advisor, like the team here at Mortgage Suite.

 

What’s Happening Currently?

OCR Rise

As we just discussed, the OCR rose to 5.25% on 5th April 2023. This will have an impact on interest rates. ANZ is the first of the big banks to announce increases to both their mortgage rates and their savings rates. [source]

DTI Restrictions

While not yet confirmed, it’s looking likely that Debt-To-Income restrictions will become a formal tool used when considering residential mortgage lending from March next year. If introduced, they are unlikely to have a huge impact as risky lending has already been reduced. Plus, the recent interest rate rises and dropping house prices have meant people haven’t been borrowing as much anyway. [source]

But, it is helpful to know that DTI restrictions will likely come into place and to be mindful of them when considering your borrowing power.

Dropping House Values

The latest QV House Price Index data shows that house values have made their biggest first-quarter fall in more than 15 years. Since the beginning of last year, average house values have dropped by more than $250,000 in Auckland and Wellington. And it looks like they are set to fall further still.

But, it’s not all bad news. According to QV national spokesperson Simon Petersen, “Some economists are predicting interest rates could be close to peaking. With increasing migration into the country only expected to increase demand for residential property, we might see the downturn bottom out later in the year, but there’s still so much uncertainty.” [source]

So, it will be a case of watching to see what happens in the property market and taking advice about your individual situation. If you have mortgage rates coming up for renewal, are considering buying or selling, or would simply like some general advice about where you stand financially, contact the friendly team at Mortgage Suite today.

We hope you enjoy the reads this month. If you want to stay up to date with everything we have going on let’s stay connected on Facebook, LinkedIn and our Mortgage Suite website. If you want to chat about anything Mortgage or interest rate related, please feel free to get in touch. 

How Do Banks Set Their Mortgage Rates?

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How Do Banks Set Their Mortgage Rates?

As Autumn rolls in and we continue to see more than gloomy weather!

As another predicted OCR rise comes into play, we are hearing about another round of mortgage rate increases. But, how much does the OCR really impact mortgage rates? This month, we thought we’d explain some of the factors that contribute to how Lenders set their mortgage rates. So, read on to find out more about that and a quick update on the March finance market.

How Do Banks Set Mortgage Rates?

When you take out a mortgage with a bank, you know that you are going to have to pay interest on the amount that is borrowed. But, have you ever wondered how that interest rate is calculated? Rather than plucking a number out of thin air, there are a number of factors that contribute to that rate. These are the main ones:

Official Cash Rate

Lending institutions, like banks, cannot simply magic up money to lend to their customers. They need to source funds to lend out. These can come from a number of sources, but one of the main ones is NZ’s Reserve Bank. The official cash rate (OCR) is set by the Reserve Bank of NZ and is the fixed rate at which banks can borrow capital. The OCR is reviewed periodically by the Reserve Bank to ensure it is set at the correct rate for the current economic climate. So, changes in the OCR can influence mortgage rates as they impact the cost your bank will need to pay for loan funding.

Funding Costs

The Reserve Bank is not the only place that your bank will source the funds to lend to their customers. They will also borrow money from term depositors and international money markets. Again, there are costs associated with this borrowing, which your bank will need to pass on to you as the customer. They recover these costs by building them into your mortgage interest rates. Basically, the more it costs for banks to borrow capital, the higher your mortgage rates will become.

Competition

There are only so many mortgage customers out there, so lenders will compete for their business. This can have a positive impact on interest rates as banks may adjust those rates in response to what their competitors are doing in order to attract customers.

Economic Conditions

The overall economic state locally and globally can also impact interest rates. For example, NZ is currently experiencing a higher than average rate of inflation. The Reserve Bank is taking steps to raise the OCR in a bid to bring inflation back within the recommended range. Other factors like global interest rates, global financial markets and political events can all impact mortgage rates. As can the economic climate of major trading partners like China, the USA and Australia.

Risk

Lenders will also assess the risk factor of lending to individual customers. They will assess your credit score, income and property value to determine whether you are a high or low risk customer. Customers with a higher risk profile might be offered higher mortgage rates to compensate for the increased risk the Lender takes on by lending funds to you.

Bank Costs

Whether we like it or not, banks operate as a business and have associated costs to factor in. “These, and the other costs banks face, like paying staff wages, marketing to keep their brands in the public’s consciousness, renting premises, paying tax, hedging their interest rate and currency risks, and lobbying for bank-friendly laws, add up to banks’ cost of doing business, and it is all priced into what they charge for their home loans.” [source]   As you can see, there are a number of factors that contribute to the interest rates you pay on your mortgage. They are not simply determined by the OCR, but it is a large contributing factor.  

A Quick Update – March 2023

Cash Rate Rises Again

As expected, the Reserve Bank increased the official cash rate (OCR) on Feb 22, bringing it to 4.75%. So, what does that mean for you as a mortgage holder? We are all well aware that mortgage rates have increased from the 2% mark to the 6% mark in the last two years. But, are the mortgage rates going to increase further? Well, they may do. But, it might not be by as much as you fear. Just because the cash rate has gone up by 50 basis points, it doesn’t mean that mortgage rates will immediately follow suit. We will likely see changes in the floating and one-year fixed rates, but longer term rates will probably not be as impacted. If you are one of the 50% of mortgage holders whose rates are coming up for renewal this year, we strongly recommend taking advice on what is the best option for your circumstances. Have a chat with the friendly team at Mortgage Suite today.  

Term Deposit Rates Rise

One of the positive aspects of mortgage rates increasing is the fact that interest rates generally rise also. So, if you have some savings, you can make them work better for you right now. Term deposit rates are up. Kiwibank is currently advertising rates of 5.49% interest for a 1 year term deposit (minimum investment of $10,000). The other big banks are also offering rates upwards of 5%. These term deposit rates are significantly higher than what we have seen in recent years. It is worth considering as a low risk investment. But, if you have any queries about whether a term deposit is the right investment for you, speak with a trusted financial advisor first. The Mortgage Suite team are more than happy to help you establish how to make your money work better for you.

Our Top Tips For Budgeting And Saving Money in 2023

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Start Of 2023 Wrap Up

What has the new year brought in terms of finance and property news? Here is a quick recap of the highlights: Home Loan Rates While home loan rates have certainly risen in the last year, it could be worse! They are not keeping pace with the OCR increases. In the last year, the OCR has increased by 4%, but on average, the one year fixed term rate has only increased by 3.68% [source]. The Reserve Bank is predicting further OCR rises, but they may not have to raise it as high as first thought [source]. But, any increase will impact home loan rates, so now is the time to review your current lending before any further increases are implemented. Cost of Living The news is not great when it comes to the current cost of living. Inflation has remained stubbornly high at 7.3% which is contributing towards increased costs everywhere. Food prices are up 11.3%, household utilities are up and so are rent prices. Plus, there is the added worry of when the government might remove the current fuel subsidy. It certainly is getting harder to cover the cost of everything each month. So, we have assembled some money saving and budgeting tips that may help…

Budgeting Tips

The reality is, with New Zealand’s rising living costs, your dollars might not be going as far as they used to. So, we’ve put together some handy tips for budgeting:
  1. Track your spending: Keep a record of all your expenses for at least a month to get a clear picture of where your money is going. Then, you can assess which of those costs are necessary and if there are areas where you can save some money.
  2. Set a budget: Once you understand your spending and your necessary costs, set a budget for each category of expenses (e.g., housing, food, transportation). Ensure this stays within your monthly earnings and try to stick to it as closely as possible.
  3. Prioritise expenses: Decide which expenses are necessary and which can be reduced or eliminated. You may also choose to spread some costs throughout the year, like spreading the cost of your Christmas shopping by getting a gift each month to put away.
  4. Reduce unnecessary expenses: Is there anything that you aren’t using any more but are still paying for? Even cutting back on unused subscriptions, excessive dining out, and some entertainment expenses can make a huge difference.
  5. Save automatically: If you wait for there to be extra funds in your account before saving, you’ll probably be waiting forever! Instead, set up an automatic savings transfer (when your wages come in) from your main account to a separate account each month. Even if it’s a small amount each month, it will add up over time.
  6. Avoid impulse purchases: Make a shopping list and stick to it to avoid impulse buying. Also, if you have the impulse to buy something, sleep on the decision to see if you really need that item or not.
  7. Use cash instead of credit: When your wages come in, take out a set amount of cash that fits within your budget and use that for your spending. Paying with cash can make you more conscious of the amount of money you are going through and can help avoid overspending.
  8. Seek help if needed: If it feels like your finances are getting on top of you, consider reaching out to a financial advisor or budgeting service.
  9. Assess your mortgage payments: Interest rates have been steadily climbing and if you need to refix, chances are, it’s going to be at a higher rate than your current fixed term. Speaking with an experienced mortgage advisor can ensure you get the best rates and mortgage structure for your situation.
Money Saving Ideas Apart from budgeting, there are some other ways that you can save some money. They are:
  • Make your lunch, rather than buying it every day
  • Buy a keep cup and take a coffee to go from home, rather than stopping in at a cafe daily
  • Plan your meals for the week and only buy the ingredients you need to make them
  • Use public transport if possible
  • Carpool or ride share with colleagues to work
  • Regularly review your insurance costs to ensure competitiveness and confirm you aren’t over insured
Is it time to refix your mortgage or see if there is a better option available for you? Then, get in touch with the friendly Mortgage Suite team today for a free consultation.

Inflation, Interest Rates, Recession: The 2022 Wrap Up

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Inflation, Interest Rates, Recession: The 2022 Wrap Up

Inflation, Interest Rates, Recession: The 2022 Wrap Up

Firstly, we want to thank all of our customers, banks we have worked with and business partners for making 2022 such a successful year.

We hope you all have a wonderful holiday celebration with your friends, families and loved ones.

We’ll be taking a short break over Christmas, closing on the 23rd December and returning on 17th January.

Now, let’s take a look at how the year finished…

2022 Wrapped Up

2022 is drawing to a close. Will the year finish on a high?

Inflation, interest rates, property prices and a potential recession are all playing on everyone’s minds.

So, what are we dealing with?

Let’s look into all these aspects in a bit more detail so that you can have peace of mind heading into Christmas.

 

Interest Rates Are Up… Again

On 23rd November, the Reserve Bank announced that they have raised the OCR again in a bid to control inflation. The cash rate has now lifted to 4.25% from the previous rate of 3.5%.

While the Reserve Bank feels the rise is necessary, “an expert says it’s the biggest increase since the OCR was introduced in 1999 – and there is still a real chance New Zealand could fall into a recession.” [source] So, what does it mean for you?

“It’s certainly clear that interest rates are much, much higher than they were a year ago or eighteen months ago. And that hasn’t been entirely expected by everyone so, it is a bit of a shock and as we’ve heard, people are struggling with the cost of living so it’s a bit counter-intuitive to pile another greater cost of living on to people.

But the fact is, the only way to get on top of inflation is to actually cool spending down.” [source]

There is some good news though. If you have savings in the bank, deposit rates are going up. So, you could see a positive impact on your savings. [source]

 

What Do Higher Mortgage Rates Mean?

Every month, we hear talk of mortgage rates rising, and this month is no different. But, what does it mean in practical dollar terms for the average New Zealander?

Well, “ASB senior economist Mark Smith said the average rise in household debt servicing costs would be $80 per week by the end of next year and $100 by the end of 2024.” [source]

Of course, it is all dependent on the level of debt that you have. The average mortgage for a first home buyer is currently sitting around $600,000. And those that have a significant amount of debt will obviously feel the effects of the interest rate rises more heavily.

“RBNZ figures show a person could have fixed a loan for two years at the end of 2020 at 2.59%. When it is refixed at the end of this year, that person will pay an equivalent rate close to 6.75%. On a mortgage of $500,000, those payments would be an extra $300 per week.” [source]

The best solution is to chat with an experienced mortgage broker if your fixed term mortgage is coming up for renewal. We can provide advice on the best structure for your individual needs and secure the best rates possible.

 

More Kiwis Are In Debt

It’s no secret that inflation has been rising, and as a result, we are paying more for the same goods and services than we were a year ago. This has a knock on effect, making it harder for some families to meet the repayment costs. There has also been a higher level of borrowing.

The number of New Zealanders who are behind on their repayments is up by 5% compared to October last year, payments are overdue on 15,200 mortgages, personal loans are up by 18.1% and vehicle loans are up by 17.3%. And, as a sign of the times, mortgage lending is down by 36%. [source]

We aren’t out of the woods yet, as it is unclear what the financial future holds for everyday New Zealanders. So, if you are feeling the pinch, our best advice is to have a chat with a financial advisor like the team here at Mortgage Suite to see if there are better options for your current debt. We may be able to restructure your existing loans or consolidate for easier repayments.

 

House Sales Are Slow, But Still Happening

You might be thinking that house sales have ground to a halt with the ever increasing mortgage rates and rising inflation. But that actually isn’t the case! Houses are definitely still selling.

Barfoot & Thompson reported selling 700 properties in November, which was up from 627 in October. While down 41% from the 1182 that were sold last November, it is still the highest monthly number of homes sold in the last six months. [source]

“Property is selling, albeit at a level lower than at the same time last year. What it demonstrates is vendors and buyers are reaching an agreement as to where prices are at,” says Thompson. [source]

The average sale price for the month of November was $1,153,795. It should be noted that this was influenced by a number of purchases in the $2 million and above price bracket, but also a number of first home buyers in the under $750,000 category [source]. So, quite a spread across the market.

What does that mean for the average New Zealander? Well as a buyer, there are plenty of properties to choose from, in fact, buyer choice has rarely been greater. And as a seller, it is still possible to sell your home for a fair price. But, before doing anything, both sellers and buyers should chat with an experienced mortgage broker to check the financial viability of any property transaction.

 

Borrowing Capabilities

Borrowing money in the new year will be somewhat different. Property prices are falling and there is increased stock on the market, so competition between buyers may reduce. Each bank has its own assessment criteria and there are significant variations between lenders, some as much as $300k up or down.

There are also a number of other things to consider:

  • Debt to income restrictions (this may impact the amount you can borrow)
  • LVR restrictions (causing issues for investors)
  • Rising interest rates (meaning your repayments will be more for the same borrowing)
  • Restrictions from the CCCFA
  • Rental income shading – with only 60% in play when it used to be 80%

Coupled with the uncertainty of the property market, rising inflation and the state of the global economy, borrowing is not going to be an easy process in the coming year. That’s why it is always best to seek the advice of an experienced mortgage expert, like the team here at Mortgage Suite.

 

Are We Facing A Recession?

Recently, we have been hearing whispers of the “R” word being mentioned… Recession. So, is one on the way and should we be prepared for it?

Word on the street is, not yet.

GDP figures are due from Stats NZ on Wednesday and the prediction is that there will be “lower yet significant quarterly growth”. They are expecting that growth to slow in 2023 and 2024, which could potentially bring the start of a recession.

“However, the consolation prize for that – lower interest rates – could still be some way off.

‘We think it will be mid-2023 before the Bank will be comfortable with where OCR settings are sitting to pause the tightening cycle, and mid-2024 before it is prepared to start bringing the OCR down,’ the ASB team wrote.” [source]

Basically, a recession has not arrived yet. But, it is expected to arrive in the coming quarters, with high interest rates likely to stick around until that happens. So, you want to make sure you are in the best financial position possible. If you have fixed mortgage terms coming up for renewal or you are starting to feel the financial squeeze, now is the time to chat to the friendly team at Mortgage Suite.

Drop us a line today.

Is It A Good Time To Be A Buyer?

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With the weather warming, it feels like summer is around the corner. But unfortunately, the property sector still isn’t really seeing the sunshine.

Most of the banks are currently in a happy spot, with BNZ, Westpac, ASB and ANZ all reporting record profits, but homeowners and those looking to buy still won’t be all that happy.

So let’s have a look at what’s happening in the sector this month.

It’s Actually A Reasonably Good Time To Be A Home Buyer

The latest QV House Price Index shows average house prices are down more than $100,000 over the course of this year. And in Auckland and Wellington, that drop is closer to $200,000. Figures are declining in every region except Queenstown-Lakes which is bucking the trend. [source]

Spring usually brings a bump in the market, but the values don’t seem to be reflecting that this spring. There has been an increase in the number of properties on the market though. 

So what does that mean for buyers?

Well, the main thing is that it means more choice, and that opens the door for price negotiation. QV Chief Operating Office David Nagel said purchasers have “plenty of choice and the upper hand when it comes time to negotiate”. This is important given that mortgage rates are still high, because it means buyers might get a better price and need a smaller loan.

If you are considering buying a home, it is best to get advice from a mortgage expert like the team here at Mortgage Suite. That way we can explore your individual needs and affordability options.

But Not Necessarily For First-Time Home Buyers

Interest.co. nz’s Home Loan Affordability Reports show that it has got progressively harder to be a first-time buyer over the last few years. Comparisons between 2019 and 2022 show that it takes people longer to save up the required deposit and that mortgage repayments now take a larger chunk out of take-home pay. This is mainly a combination of higher mortgage rates and wages not keeping up with the rises. 

So while first home buyers may be benefiting a little from the increased choice in the market, higher mortgage rates offset this benefit somewhat. But, it’s not all bad news. It simply means as a first home buyer, you need to be clever about the mortgage you take out and potentially try to save more for a deposit if you can.

If you are looking to get on the property ladder, the best place to start is by discussing your options with a mortgage broker. We can look at your current financial situation and explore a wide range of mortgage options for you.

Are You Planning To Build Or Develop?

While house prices are falling and the market is sluggish, the number of new homes being consented doesn’t seem to be in the same slump. In fact up to September 2022, Statistics NZ reports that more than 50,000 dwellings have been consented, up just over seven per cent on the same time last year. Standalone homes were the biggest number but townhouse consents are up as are retirement village units. [source]

The Sector Trends Report from the Ministry of Business, Innovation and Employment (MBIE) does, however show that the building process is getting longer and the cost of building is getting more expensive. [source]

If you are planning to build, the finance you need may differ from a traditional mortgage. Get in touch to talk through what the best way to finance your project would be. We can work with you to look at development funding from either a bank or a private lender.

Is It Time To Check Your Insurance?

If you’ve bought a property or if you already own one, then a new report from CoreLogic suggests it might pay to check your insurance policy. Why? Because, this survey found that about a third of respondents weren’t sure whether they had their property insured for enough.

Many insurers are now employing a sum insured policy which means they will only pay out as much as the owner has stated the home is worth. Given the rocketing costs of building materials and labour shortages potentially pushing up labour costs too, the cost of rebuilding or replacing a house now is much more than it used to be. It’s worth checking your cover just in case.

What About Mortgage Rates?

It wouldn’t be a Mortgage Suite newsletter update if we didn’t give a quick mention of what mortgage rates are doing!

You have probably heard that the Reserve Bank has again upped the OCR to 3.5% in an attempt to halt unprecedented inflation. That will mean more increases to mortgage rates in the near future.

If you have a fixed rate coming up for renewal soon, it is really important to have a discussion with an experienced mortgage broker about your options. Get in touch with our team today for a no-obligation chat.

The OCR Is Up Again, What Does That Mean For Mortgage Holders?

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The OCR Is Up Again, What Does That Mean For Mortgage Holders?

The clocks have changed, and the days are getting longer and lighter. But are things looking brighter in the property market?

Well, if we are honest, things aren’t looking that much brighter… yet. But, there are signs of new life, just like the new life that is beginning to spring up as the seasons change.

So, let’s dive in and see what has happened in the world of finance and property in the last month.

RBNZ Has Raised The Offical Cash Rate (OCR) Again

While not totally unexpected, this month’s big news is another rise in the OCR. RBNZ has raised the rate to 3.5% with more raises expected going forward.

The Reserve Bank said monetary conditions needed to tighten further to maintain price stability and employment levels. Despite a dip in oil prices and an easing of supply chain issues, core measures of inflation have risen globally. [source]

Kiwibank economist Jarrod Kerr noted that the change will likely add more pressure to New Zealanders with a slowdown in discretionary spending and more increases in the cost of home ownership. [source]

So, what does that mean for mortgage holders? If you are starting to feel the strain of rising living costs, it might be time to consider whether your mortgage is still offering you the best solution.

Ask yourself these questions:

  • Are you happy with the bank you are with?
  • Do they offer all the mortgage products you need to pay down your mortgage quickly?
  • Have you reviewed your mortgage in the last 24 months?

We can review your mortgage with you and look at other options, including advising whether it would be cost-effective in the long run to break a fixed mortgage term.

Auction Sales Are Improving

After a sluggish few months, auction sales appear to be on the rise. The latest figures from interest.co.nz show that in the last week of September, 75 properties sold under the hammer – a sales rate of 41%. This was up from 33% a couple of weeks ago. [source]

Barfoot & Thompson’s activity was also on the rise after a slow period. The agency is the biggest in Auckland, and it auctioned 90 properties at the end of September with the number of sales also up. [source]

Auction has always been a viable method of sale for property. Even if it does not immediately sell under the hammer, it does help to draw interest to your property. So if you are considering taking your home to auction or bidding at auction, let’s have a chat now to see what your options are.

But Prices Are Still Falling

TradeMe’s Property Price Index shows property listing numbers are still rising. However, property sales aren’t increasing at the same level and unfortunately, it would appear that prices are still falling. Some regions had more than double the number of properties for sale in August compared to the same time last year, with supply outstripping demand.

Property Sales Director Gavin Lloyd said if supply kept outperforming demand, then prices would fall further. “Prices are falling as a direct result of sky-high supply paired with comparatively low demand, taking the pressure off buyers and forcing sellers to lower their price expectations”, he said. [source]

What does that mean for buyers? Well, falling prices are still good news, but set against rising mortgage rates and increased cost of living making it difficult to have extra money to save, buying a house can still be tricky. But, not impossible. We can help you look at all the options for lending to ensure you get the deal that suits you best, so give us a call to discuss.

Fewer Home Loans

The latest figures show that mortgage lending volumes are still weak and the number of loans made in August was the lowest for the month since 2013. Report author CoreLogic says both investors and owner-occupiers are struggling. CoreLogic chief property economist Kelvin Davidson said low equity loans were particularly hard to secure.

“Given continued falls in property values, it’s not hard to understand a cautious attitude from the banks when it comes to approving loans to borrowers who already have lower equity levels”, he said. “With housing affordability still stretched and mortgage rates higher, it’s likely that fewer borrowers really want a high LVR loan either.” [source]

In saying that, lenders are still willing to give funds to those that can present a quality application. So, if you have been considering if now is the right time to make a move in the property market, let’s talk about your options.

With house prices falling, there are some great buys out there, so it’s worth doing your homework now, allowing you to pounce if the right opportunity arises. Give us a call today for honest and trustworthy mortgage advice.

Is The Spring Property Market Signalling A Renewal?

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Is The Spring Property Market Signalling A Renewal?

Spring has sprung! So, what does that mean for the world of finance and property?

Well, on the face of it, lots is the same – there is still reasonably low confidence in the market, house prices are continuing to fall lower and mortgage rates are creeping up.

But, with spring here, there’s hope that things might start turning around soon.

Let’s take a look at what’s going on right now.

Mortgage Rates Are Creeping Up

It wouldn’t be a monthly update without a look at the latest mortgage rates. Last month we reported that rates had been dropping, especially for longer fixed terms, but recently ASB and ANZ have raised their fixed home rates for one-year and 18-month terms. Finding a fixed rate below 5% is nigh on impossible now. [source]

This is interesting given that spring is usually when the housing market picks up and mortgages get competitive. But, the market signs aren’t that flash, so this year may be different.

Because the market isn’t moving as much and people aren’t necessarily buying, banks may think people will be more likely to just stick where they are. So does that mean you shouldn’t be shopping around if your fixed term is up? Not necessarily.

Depending on your situation, it might still be worth looking for a new lender for your next term or even breaking your mortgage to switch. With competition high, banks have begun offering other incentive types, such as cash backs or other options, which might make switching attractive. If you’d like to look at your options for moving mortgages, then get in touch, and we can look at what might work for you.

Spring Bounce Back? Maybe Not This Year

Spring is generally a time that real estate agents look forward to. After the quiet of winter, spring usually signals an uptick in the housing market with more sales. This year though, it might not be quite as good as usual.

ASB’s latest Housing Confidence Survey shows public confidence in the housing market has finally dropped. Now people expect house prices to drop. The survey found 31% more people thought prices would drop than thought they would rise. According to the report, that’s the lowest level of confidence for 13 years. [source]

In the market, the number of homes available for sale is much higher than last year, but prices are still falling. Realestate.co.nz figures for August showed almost double the number of homes for sale compared to last year with stock at a seven-year high. [source]

So, what does it mean if you were hoping to sell? Well, it’s true that you might not get as much for your property as you would have at the height of the boom. But, it also means that it won’t cost you as much to buy property. It’s worth weighing up your options if you need to upsize, downsize or move locations.

Moving Your Mortgage Could Be Getting Easier

If you want to switch your mortgage between lenders, moves by the Government could potentially make it easier. The Government has signalled it is taking the next steps in introducing a data sharing scheme. This would introduce a Consumer Data Right (CDR) to allow people to share data held about them by third parties. [source]

This would mean banks would need to share data about your loan details with a rival lender if you asked them to.

The move could be a while off, but in the long-term, it could make switching loans easier. As always, though, we’d advocate getting expert advice before you make any changes to your home loan. So, if you are considering changes, drop us a line for an obligation free chat.

Rent Freeze Suggested By The Human Rights Commission

The Human Rights Commission has suggested that private landlords should freeze rents amid the cost of living crisis. But, landlords have retaliated saying they shouldn’t have to suffer because of a situation out of their control. 

There was a widespread rent freeze in 2020 due to Covid-19 which most landlords supported, but the idea of another pause has caused concern. President of the New Zealand Property Investors Federation said most landlords were not “fat cats”, but normal people trying to plan for the future who were also facing rising costs. [source]

Generally, most rental property loans are on “Interest Only” basis and we find that lenders are asking for the principal payments to commence whenever the Interest Only period expires. This can create cashflow problems for you as the landlord. So, before you agree to their terms, talk to us first.

So, if you own a rental property, now might be a time to consider what you want to do with it. If you have good tenants and can afford to offer reasonable rents for a time, then it will be worth holding onto it. But if not, you might want to consider what options are available to you.

As always, we are happy to explore what those options could be with you. Get in touch with the friendly team at Mortgage Suite today.

 

 

Are We Entering A Buyers Market?

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Are We Entering A Buyers Market?

This month, the news from the housing market is actually quite cheerful – at least if you are a buyer. Mortgage rates have dropped again, prices are lower, and there are plenty of properties to choose from.

Don’t panic if you are considering selling though, it’s not all bad news.

Let’s look at the latest news and see what bright spots there are for buyers this month.

Are We Entering A Buyers Market?

More Good News For Mortgage Rates

Last month we reported good news with drops in mortgage rates, and there’s more of the same this month. Most major banks have cut their fixed-term loan rates, some by quite considerable amounts. [source]

Why is it happening? Well, competition appears to be biting at the banks. They seem to be generating better offers in an attempt to increase a share of borrowers in a tight market. The ability to do this is helped by wholesale interest rates easing.

The rates for longer terms, including four and five year rates, have been cut, with borrowers happy to lock in longer terms in a bid to protect themselves from fluctuation.

Is this the right move? If you can plan far enough ahead and know that you can cope with repayments for the next few years, then fixing for a longer term at a better rate can be a good idea. But of course, you do risk floating rates falling and being stuck with something that becomes unfavourable.

The best thing to do is talk to us before you make any decisions, and we can help you see what’s best for your financial situation. If you already have a mortgage but think you can get a better deal, we can talk you through your options for breaking your current loan and whether it’s worth it.

Is It Now A Buyers Market?

There’s good news if you are looking for a new home – it seems that buyers are now really in control of the market. Prices are still dropping, and the number of homes available for sale is twice that of a year ago according to realestate.co.nz.

That means more choice for buyers and the possibility of a bargain. Vanessa Williams from realestate.co.nz says the scales have tipped. “Buyers’ FOMO (fear of missing out) is decreasing. The scales have tipped. Buyers now have the edge,” she said. [source].

Asking prices are also still declining in all regions. The national average asking price on realestate.co.nz was down just under 9% last month. So, if you are considering buying, now could be the time to do it. Chat with us to see what your options could be.

First Home Buyers Seem To Be Faring Better Than Most

The latest figures from the Reserve Bank and the Real Estate Institute of NZ show that first-time buyers are still prevalent in the market. While sales to first home buyers are down in line with the rest of the market, they haven’t fallen as much.

First home buyers accounted for almost 40% of residential sales in June. Figures also suggest that first home buyers haven’t reduced the amount they are willing to borrow or buy for, they are just getting better homes for the price. [source]

It’s been suggested that the statistics are because first home buyers are more likely to have stronger motivation to buy, while existing homeowners who were thinking of trading up and property investors might be more likely to wait in the current market.

So, if you are a first-time buyer, then the current market might be a great time to get on the property ladder, and you might even be able to afford more than you thought. It’s easy to get into a financial situation you can’t handle, though. Talking things through with a mortgage advisor is a good idea. We can help you analyse your finances properly and give you a range of mortgage options so you get a good deal.

The Government’s Clampdown On Foreign Buyers Looks To Be Having An Effect

In 2018, the government introduced new rules to restrict house sales for those who did not hold citizenship or residency. Since then, purchases of homes by foreign buyers have dropped 91%. In fact, in the June 2022 quarter, just 96 properties were bought by foreign owners compared to more than 1000 in the June 2018 quarter just before the new regulations came in. [source]

While this is good news for buyers with more properties likely to be available to local purchasers, it may not be such good news for sellers who often looked to foreign buyers to drive interest or raise prices.

Fortunately, it’s not all doom and gloom for sellers. There are still motivated buyers out there, especially in the first home sector. And if you are selling and buying in the same market, then the reduced purchase prices won’t have much of an impact on the final outcome.

If you have any concerns, the first thing to do is to speak with an expert mortgage advisor, like the team here at Mortgage Suite. We can help you establish what you can achieve and how you can reach your property goals regardless of what the market is doing. Contact us today.

Wait… What? Mortgage Rates Are Dropping Again?

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Wait… What? Mortgage Rates Are Dropping Again?

It might feel like all you hear is bad news when it comes to property and finances lately.

It’s still not a pretty picture in the housing market, but it’s not all doom and gloom either. This month we are bringing you some bright spots.

Mortgage rates have dropped slightly, yes, you did hear that right! And, there might be more changes on the horizon for the CCCFA that could relieve lending issues.

So, let’s look at all the aspects that have been affecting the market since our last update.

 

More Changes To The CCCFA?

In case you haven’t heard enough about the Credit Contracts and Consumer Finance Act yet, more changes to the beleaguered legislation are likely to happen!

A second stage of proposed changes is being considered by the Minister of Commerce and Consumer Affairs, David Clark, with an announcement expected in the next few weeks before submissions open to the lending industry. [source]

The first lot of reforms, which included the removal of some criticised elements from a borrower’s list of expenses, were implemented in July. But, these changes have since been criticised for not going far enough.

We’ll just have to wait and see if the second round of changes makes it easier for people to get home loans again.

 

New Home Loans Are Proving More Difficult For Low Deposit Customers

Two major banks, ASB and ANZ, have announced that they are temporarily stopping offering home loans to people with less than a 20% deposit or a loan to value ratio (LVR) of 80%. [source]

Why have they made this decision? Well, it is likely because The Reserve Bank of New Zealand says banks must have no more than 10% of owner-occupied mortgage lending at an LVR of 80% or more.

An ASB spokesperson said the bank currently had “a full pipeline of customers who are pre-approved for a home loan with an LVR above 80%” Therefore, the bank had paused any new applications to meet the Reserve Bank’s criteria.

But, it doesn’t mean all hope is lost if you are struggling to get together a deposit of more than 20%. Several of the major banks have said they are still offering high LVR loans, and there are lots of other lenders that are worth exploring. There may also be options to help you reach your deposit goal, such as using part of your KiwiSaver.

Working with a mortgage adviser can help you get a good handle on your available finances and give you access to a wider range of lenders than just talking to the main banks, so get in touch to discuss your options.

 

Banks Reducing Home Loan Rates And Increasing Savings Rates

The last few months have seen us announce nothing but increases in mortgage rates. But, this month is a little different! A number of banks have actually reduced their fixed rates for one and two year terms. Major banks including ANZ, Westpac, BNZ and ASB all reduced their rates after changes in international market trends. [source]

If you are due to renew your fixed term mortgage it might be worth shopping around to see if you can get a better deal. If you aren’t due to renew but think another lender might offer a better option, then you can investigate whether the break fee for your current lender is worth it. We can help you explore your options and do the maths to work out the best deal for you.

It’s worth noting that some banks have also raised term deposit rates. Kiwibank was offering 4% for a one year term deposit, a rate not seen for some years. [source] In the current financial climate you might not want to invest money for longer than a year or two so it’s worth keeping an eye on these rates if you are looking for an investment.

 

House Values Are Still Dropping

The fact that house prices are dropping has become such a regular trend that it is hardly news anymore, but the latest figures from the QV House Price Index show things are still dropping. The average value of a New Zealand home has dropped 3.4% over the three months to June and down 4.9% since the beginning of the year. Only Queenstown has shown an increase in value. [source]

While lower prices should make it easier for buyers, there are a range of other issues to consider. These include getting a deposit, the CCCFA and higher mortgage rates, so it can still make things difficult for buyers. The best thing to do is speak to an experienced mortgage broker so they can assess your individual circumstances and provide tailored advice.

 

Is The Rental Market Losing Its Buoyancy?

Rental properties have proven to be a good investment in the past few years with demand high and owners able to charge above-market rents. But the latest figures from Trade Me’s rental price index show demand is falling and more properties are becoming available.

Figures show that year on year for May, the number of properties listed was up 12% but the demand fell by 8%. Rents have also dropped for the first time in 2022. Trade Me Sales Director Gavin Lloyd predicted that landlords might need to start cutting rents dramatically if the situation continues. [source]

If you own investment properties, especially if you have a mortgage on them, then it’s probably worth looking at your position now. That way, you can be prepared should you need to find new tenants or change your rent.

Again, this is something that our experienced mortgage brokers can help you explore. Get in touch with our team today to discuss your investment options.

CCCFA Changes Are Finally Revealed – What Do They Mean?

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Changes To The CCFA Revealed

It’s no secret that the Credit Contracts and Consumer Finance Act (CCFA) was not loved by many. It has been widely criticised for bringing in too much paperwork and causing issues for capable borrowers. Less than two months after the rules came in, a review was ordered and after submissions changes have now been announced.

These changes include:

  • Clarifying that when borrowers provide a detailed breakdown of future living expenses there is no need to inquire into current living expenses from recent bank transactions.
  • Removal of regular ‘savings’ and ‘investments’ as examples of outgoings that lenders need to inquire into
  • Clarifying that the requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrowers directly rather than relating to information from bank transaction records.
  • Providing alternative guidance and examples for when it is ‘obvious’ that a loan is affordable

These changes will come into effect in July and further changes may also come. [source]

Are The CCCFA Changes Enough?

One of the main criticisms of the Act was that it focused too much on spending habits – the infamous cups of coffee that deprived some people of their home loans – and this will continue with detailed breakdowns of spending still being required. The New Zealand Banker’s Association chief executive Roger Beaumont said the changes weren’t likely to have much impact.

“Most of the existing requirements remain in place, meaning customers will still have to provide detailed information about their spending, resulting in a more painstaking process and more loan applications being declined than before the December rule change. While we agree with the government’s aim to protect vulnerable consumers from unscrupulous lenders, the one-size fits all approach for all lenders and all loan types means banks don’t have the same discretion or flexibility they used to.” [source]

While these changes might help, there is still extra work to be done for those looking to borrow money, so it pays to talk to an expert before applying for your home loan. We can discuss your situation with you and help you find the most appropriate options as well as help you get your numbers in order for your application.

Mortgage Rates Up Again (but there might be incentives coming)

Several of the major lenders have raised their fixed rates again, including ANZ, Kiwibank, ASB and Westpac and it’s now unlikely that you’ll find a fixed rate below 4%. [source]

But, with the number of mortgage applications dropping, it looks like the banks might also start trying to entice customers with special deals. Recently Kiwibank has offered customers one per cent of their home loan as a cash contribution up to $10,000, a significant increase on previous deals. It will be interesting to see if other lenders follow suit as the war for business heats up. [source]

While these incentives are tempting, especially if rates are higher, you should still ensure that the other details of the loan product are right for you and that you can meet any of the conditions attached to the deal. The best thing to do is to seek advice from a trusted mortgage adviser before making any firm decisions.

Property Tax Law Changes For Investors

If you own a residential rental property, then you need to be aware of recent changes to property tax laws. The first is around the Bright-Line property rule which taxes the financial gains when buying and selling a home for income.

New builds now attract a shorter 5-year bright-line period and there have also been modifications to the main home exclusion policy when there is another home on the same land for investment purposes. If the main home is over 50% of the land area then the existing exclusions continue to apply. However, if the home is under 50% of the land area, any gains made are apportioned between the rental and the main home.

And, if the main home is not used for periods of more than 12 consecutive months then the time apportioned rule applies in all circumstances. The good news is that bright-line filings can now be processed through myIR, making it easier. [source]

It’s also important to recognise that the ability to claim interest as an expense on loans for residential properties is being phased out for any properties purchased on or after 27 March 2021. You won’t be able to claim interest as an expense for properties purchased after that date. And, the ability to deduct interest as an expense for properties purchased before that date is being phased out, ending 31 March 2025. [source].

Please note that for accounting and taxation advice, you will need to speak with an Accountant or any tax expert.

Lending Continues To Drop

The latest figures from Centrix show that demand for mortgages is down again – by 27% in the year to the end of May. And those who did borrow borrowed less money than the previous year, with the value of loans falling by 38% year on year. [source]

What does this mean for everyday borrowers? Well, not a lot in all seriousness. We know that the property market has shifted slightly, with the frenzied buying period over. So this helps to explain why lending is down. In saying that, it could still be the perfect time to make your next property move and we are happy to help you make the decision with some tailored financial advice.

House Prices Are Still Dropping

The latest QV report shows that house prices are now down to similar levels seen in November last year. Independent economist Tony Alexander says his latest survey of real estate agents with REINZ shows that the market is now being impacted by a fear of overpaying on the part of buyers, especially investors. Agents are reporting fewer people attending open homes and auctions, as well as falling prices in their locations. [source]

It was also noted that ex-pat Kiwis planning to return from overseas were not boosting the market as expected.

So, what does it all mean? Well, if you are buying and selling in the same market, then the current price fall will not impact you hugely. Properties are still selling for good prices. Just this week a property in Greenlane sold for nearly $500k above its reserve.

If you have been thinking about your next move in the property market, then it’s time to get informed about what you might be able to do. Here at Mortgage Suite we provide honest and trusted advice that you can count on.

Get in touch with us today for an obligation-free chat about your next move.

Breaking My Fixed Term

It feels like an absolute age since we’ve been able to travel internationally. But, now that the borders are open, I’m taking the opportunity to break my fixed term here in New Zealand.

I’m ducking overseas to visit my lovely daughter in the USA. Unfortunately, due to lockdowns, we ended up missing her wedding.

But, don’t worry! We aren’t really gone. We’ll still be available via email and will still be able to work with you and our various lenders to ensure you can still take that next property step you’ve been dreaming of. We’ll be back on the ground in New Zealand on 28.07.22.

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