The Volatile Month Of May
It’s important in times like this to ensure you have a grip on cash flow to avoid being forced to sell your property, writes Ryan Smuts.
31 May 2022
May was certainly an eventful month in regard to the interest rate market and broader economy as we have seen the Financial Stability Report (May 4), the Budget (May 19) and another review of the Official Cash Rate (May 25).
There are expectations of another 0.50 per cent rise in late May to the OCR which, if it happens, will mean our cash rate has increased 1 per cent (from 1 per cent to 2 per cent) since before the previous review on April 13. There is no doubt this doubling in our OCR will affect mortgage borrowing rates offered to the end consumer.
It is a fairly volatile market at the moment as a borrower and it is increasingly important in times like this to ensure you have a firm understanding of your cash flow so you are able to manage these times and not be forced into a situation where you have to sell your property to make it through (particularly in a market where asset prices are depressed).
There are many ways you can do this; if referring to the interest rate table you’ll be able to see there are some times quite large differences between interest rates offered with some of the big four Australian banks, versus some of the smaller NZ banks, particularly in the rates up to three years.
I’ve compared the three-year rate because many borrowers tend to look for more certainty in a rising interest rate market. This structure may not be suitable for your needs so, as always, we recommend discussing this with a mortgage adviser.
I anticipate we will continue to see these rates increase throughout the remainder of the year in terms of fixed and floating rate options.
For clients who got into the new-build market and took advantage of the likes of ASB’s Back My Build and ANZ’s Blueprint to Build products, while their rates are on floating they are still feeling the cost of the low interest rates we somewhat got used to in 2020/2021. In many cases for those clients it makes sense to remain on floating and take the upfront savings and use these to offset future rate increases when their discounted rate expires.
We will pay particular attention to results of the Budget as this will also outline how the RBNZ intends managing the year ahead in regards to spending, and curbing the issues we are currently facing around inflation.
As mentioned, cash flow will be king in the months and years ahead, and in order to understand how you could improve your situation it’s worth having a review of your interest rates and mortgage structures with a mortgage adviser now.