The Current Financial Position Explained – October 2019

Will The OCR Drop Again?

There are mixed opinions in the market as to whether the OCR will be cut further in November. Currently, there are two distinct opinions running.

The first is that the OCR will be cut further due to low business confidence. In fact, at the end of September, NZIER data revealed that business confidence was the lowest we have seen since 2009.

“Westpac economists, including Dominick Stephens, say the weak confidence “adds to the likelihood of another OCR cut at the November Monetary Policy Statement, despite the RBNZ’s seemingly noncommittal comments at its September review” [source].

On the flip side, there is the belief that the “pickup in the housing market could give the Reserve Bank “pause for thought” over further official cash rate cuts”. Some economists are predicting that it is not a given that the OCR will be cut further in November. “The expected November cut – fully priced in by swap markets – is “not a done deal”, and the central bank could be swayed if inflation data turns out better than expected.” [source]

So, will the OCR drop or won’t it? Only time will tell!

Strong September

Part of the reason that the OCR cut is not a done deal is the strengthening housing market. This is largely down to the banks loosening their serviceability tests. As a result, lending skyrocketed in September.

“Total lending jumped to $5.5 billion in September, up from $4.7 billion in September last year and $4.5 billion in September 2017, according to newly-released figures.” [source]

It is the first home buyers that make up a big chunk of that figure. They represented $967 million of the total lending, up from $821 million in September last year. The rest of the bulk comes from other owner-occupiers with $3.4 billion of lending, up from $2.8 billion this time last year. Investors remained largely constant from last year.

“Analysts credited the lending increase to banks’ relaxed serviceability rules. Australian regulator APRA abolished its minimum testing rate for banks in August, and the move is acknowledged to have had an impact here.” [source] 

Mortgage Rates

At the start of the year, we were marvelling over the fact that interest rates had dropped below 4% and stayed there. Now, there is a whole new level of marvelling to be done. 

All of the banks now have 2-year rates below the 3.5% mark!

The question is, how much lower can they go?

The general consensus is that the rates will likely stay low throughout the rest of 2019 and into 2020. But, it is best to still act with caution for any borrowing. ASB economists feel “it is prudent for borrowers carrying debt for longer than the next couple of years to budget on higher mortgage interest rates in the longer term. However, we expect mortgage interest rates to eventually settle at levels that remain below long-run averages of the past 20 years.” [source]

What is certain is that now is a great time to explore your options in the financial market. With relaxed lending criteria and record low mortgage rates, there has never been a better time to review your current lending or to consider your next move in the property market.

Whatever your plans, it is always best to seek financial advice. Get in touch with us here at Mortgage Suite for expert advice. We can help you look into your current financial position and see what options are available to you. Give us a call today.