What A Difference A Month Makes
As interest rates continue to climb now is the time for all borrowers to review their mortgages, writes Ryan Smuts.
31 March 2022
I n the most recent month there have been a lot of changes that are likely to have an effect on the property market and the economy as a whole.
Starting things off we look to the recent official cash rate review in February, which was an increase of 0.25%, the third consecutive increase at this amount putting us at 1% at the time of writing. This is the first time this has happened since 2014 and is reflective of the current inflationary pressures we face that the RBNZ is mandated to oversee.
There are various forecasts for the coming OCR reviews with commentators suggesting we may see a 0.50% increase in one or two of the next reviews in coming months. If this does eventuate it would be the first time since May 2000. This is likely to have a direct impact on the interest rates we, as borrowers, are offered when we secure rates with a bank, particularly in the short-term fixed rates, and floating rates.
It is worth mentioning here, too, that ASB’s recent Back My Build offer is coming to an end by July, which may mean ANZ’s Blueprint to Build offer isn’t too far behind.
In recent years we have seen borrowers benefit from “fixing short” in a falling interest rate market, but comparing the rates we’re seeing today with only 12 months ago is scary, and we are now talking to many clients who are preferring to fix longer for the certainty this brings. As a result of marketing expectations on continuing interest rate increases, we cannot stress enough the importance to all borrowers of reviewing their mortgage situation now.
There are further issues at play that will add to inflation (not only domestically, but globally) with the situation in Ukraine.
Narrowing this down to focusing solely on the borrowing side of things, the expectation is this will continue to have upward pressure on interest rates which will continually increase the costs of mortgage-borrowing as a whole.
From a landlord’s perspective this may to some degree be offset with rising rental income (and personal incomes going up too in the labour market), but for some this may be insufficient if they are overexposed.
Something else for borrowers to consider is that banks and their competitive nature around interest rates may be more difficult to navigate in a tougher finance environment. The likes of the recent CCCFA changes has made it a lot harder to get approved to refinance and move banks if you deem it necessary. As a result if your bank isn’t the most competitive in terms of interest rates at the time your rates come up for renewal, you may be stuck with a more expensive lender – another reason to review your situation now and see where you stand.