In what has been described by economists as a ‘stunning move,’ this month the RBNZ chose to slash the Official Cash Rate (OCR) from 1.5% to just 1% – despite commentators predicting it would be cut by half that much.
On many different levels it’s an interesting ‘plot twist,’ as it opens up a number of questions, scenarios, and challenges. So let’s take a look across the Tasman, to see what the latest rate cuts mean for home buyers and owners…
New Zealand and Australia now on equal footing
Just the day before the RBNZ’s announcement, its Australian counterpart RBA had opted to leave the national rate unchanged at 1%, allowing more time to weigh the impact of the two consecutive rate cuts in June and July.
So, the new official rate put New Zealand on equal footing with Australia’s – and the
downward trend looks far from over. Economists on both sides of the Tasman are predicting further cash rate cuts in the coming months, to counter the worsening international outlook, and meet local employment and inflation objectives. The ultimate goal, once again, is to jumpstart spending and growth.
But what does it mean for everyday people?
Putting it simply, official rate cuts are bad news for savers and pensioners, who are likely to earn less interest. On the other hand, it’s a positive boost for borrowers, who can take
advantage of an even lower interest rate environment.
In both New Zealand and Australia, the recent cuts have been prompting many lenders to reduce their mortgage rates. And the same thing just happened again in New Zealand –
though this time to a lesser extent.
Some banks chose to pass on the full rate cut to their floating rates, but only a fraction of it to their fixed rates. As ASB chief economist Nick Tuffley explained, “these fixed rates are already well ahead of where the official cash rate has been,” as banks were already predicting the OCR to drop to 1% – just not all in one go.
Nevertheless, the rates did drop, so now is a good opportunity for renters to head to a mortgage calculator and check whether their situation has improved. Plus, existing borrowers may save money by reviewing their mortgage structure. If some of your clients are considering refixing their home loan, please remind them to discuss the pros and cons with a Mortgage Link adviser.
Why talk to a mortgage adviser?
As rates are on the move, it’s a good idea to check in with a mortgage adviser. First-home buyers may find themselves better placed to get on the property ladder. And depending on their circumstances, home owners could look at refinancing their mortgage at a more affordable rate.
If you are in New Zealand, check out Mortgage Link. Over the past 25 years, our advisers have been helping thousands of everyday Kiwis nationwide to make better-informed financial decisions and get the most out of their property opportunities. This is what good mortgage looks like.
Disclaimer: In preparation of this publication all care has been taken, however no warranty is provided as to the accuracy of the information and, as such, no responsibility is taken by Pivotal Financial for any errors or omissions.
This publication does not constitute personalised financial advice, may not be relevant to individual circumstances and should not be seen to constitute a recommendation of any description. Before taking any action in relation to matters dealt with in this publication please seek Professional Financial Advice.
(A Disclosure Statement is available on request)