Rates Are Rising
A raise in the OCR is coming and the major banks have already increased their fixed rates, writes Ryan Smuts.
1 October 2021
Rates are going up, and it’s no secret. Prior to the recent level four lockdown across the country (with some parts of the country going down levels faster than others, and Auckland finally in level three) there was certainly an expectation that the official cash rate (OCR) would be raised from its current level of 0.25%.
The RBNZ has made it abundantly clear that their intention was to increase rates, and the recent lockdowns have slowed the execution of this plan down (seen in the last OCR review on August 18 – the first day of lockdown), but by no means have stopped it. Now that lockdowns are beginning to reduce/end, we expect these plans to resume.
Lenders have already priced in an expectation that the OCR will increase, and the current expectation is by 0.25% on October 6 and November 24. There is also expectation there will be more increases going into early next year in February’s review. Some commentators have indicated that it is possible the November review produces a 0.50% rise if we don’t have any further Covid outbreaks.
Recently (mid-September) we have seen many lenders raise their interest rates in anticipation of these rate hikes – as you will see on the interest rate table – ANZ, ASB, BNZ, TSB and Westpac have had rate increases. In addition to this we’ve also seen Kiwibank and Sovereign increase their rates too.
With main-bank pricing going up, many clients we are speaking to are choosing certainty over price by fixing in longer terms for a large proportion of their debt, to hedge their risk against continuing rate increases. This is particularly important as we now see some interest rates with certain banks creeping into the 4%s.
If you are in a situation where you have debt expiring within the next 12 months – it would be worth looking at breaking and re-fixing early. You may decide it’s better to stay as is, but the exercise may be worthwhile to determine what things would look like and whether it may be suitable for you.
Non-bank lenders are becoming increasingly attractive due to their lending policy not being as strict as main-banks, and, in many cases (for example looking at Resimac), can be more favourable than banks on some of their fixed interest rates. I don’t imagine this market to stay this way for an extended period, so in many cases it may make sense to look at whether a nonbank solution could be right for you.