The Financial Updates You Need to Know About

There’s been some significant data released in the last month – we have a record-breaking inflation rise and a forecasted OCR increase.

Homebuyers are responding to an uncertain economy, with alarming rate rise predictions borrowers are opting out of floating mortgages and signing up to longer-term fixed rates.

So, what does it all mean for us?

Let’s take a closer look at the financial news from the last four weeks.

More People Opting for Longer-Term Mortgages

With interest rates forecast to rise throughout the year, buyers are responding by choosing longer fixed home loans. A report from Economist Tony Alexander revealed that 54% of advisors say their clients prefer three-year mortgages. [source]

This trend has increased rapidly since the start of the year. In June, the figure was 30%, and as recently as May, it was only around 15%.

“Alexander said of the findings: “A round of increases in fixed mortgage interest rates has occurred, and we have seen a clear shift in people’s term preference as they consider forecasts of rates going upward.”

At the start of the year, the majority of home buyers went with the one-year rate. Gradually, the two-year term became the preference, but now, the three-year term reigns supreme. This makes sense for buyers as they are able to lock in low-interest rates and avoid the seemingly inevitable rises that are looming.

Banks and advisors have been warning of considerable increases to rates, as well as higher repayments.

“Our forecasts suggest more increases are coming for mortgage rates over the rest of the year,” said Chris Tennent-Brown, senior economist at ASB. The rises would continue after that, and ASB forecast home loan rates could be 1-2 percentage points higher than they are now by 2025.” [source]

If you would like to chat about whether switching to a longer-term fixed mortgage rate is the right move for you, let’s touch base for a no-obligation chat.

Inflation Hits a Ten-Year High Of 3.3%

In early July, official data confirmed that life in New Zealand has gotten more expensive. Food, transport, construction and housing costs have increased, leading to a ten-year annual high inflation of 3.3%.

This figure saw economists at various organisations commenting on the OCR, with many predicting that the Reserve Bank of New Zealand would lift the cash rate in August.

“A team of economists from one of the retail banks weighed in by saying: “The next move is almost certainly a rate hike. The ‘least regrets’ stance is firmly favoured. We now expect the RBNZ to lift the cash rate in August (a little over four weeks from now) in what will be the first of at least three hikes from here.

“We’re likely to see two hikes by year-end, and a push to 1% by February.” [source]

Other major financial institutes predict a similar outcome, with ASB estimating a 1.5% lift in the OCR and BNZ predicting a 1% increase by November.

So, with an RBNZ interest rate review coming up on 18th August, what can we expect?

According to the experts – anything is possible.

Rates could increase a little, a lot, or not at all! [source] At this point in time, all we can do is wait. But, if you do have concerns about your current or potential lending, feel free to reach out for a no obligation chat.

Reserve Bank Cracking Down On ‘Risky Lending’

The Reserve Bank has announced its intention to minimise the amount of ‘risky lending’ allowed by banks. It is seeking to reduce the amount of risky lending to 10% of all new loans. The Reserve Bank considers risky lending to be mortgages that are more than 80% of a property’s value.

Reserve Bank Deputy Governor, Geoff Bascand, says, “We are focussed on ensuring borrowers are resilient to a range of future economic and financial conditions. We are particularly concerned about those who have borrowed in the past 12 months at high LVRs and high DTIs.”

Bascand says if house prices were to fall, some buyers could face the possibility of negative equity – which means the value of their property is below the outstanding balance on their mortgage.

“We’ve already made adjustments to Loan-to-Value Ratio restrictions to partially manage this risk, but we haven’t seen a sufficient reduction in risky lending.” [source]

The proposed changes will not make low equity lending impossible, but you will certainly need to have your numbers lined up in order to apply. That is something that we can help you work on here at The Property Finance Centre.

What Is the Best Move Right Now?

With the Covid Delta outbreak raging around the world, things remain changeable.

With all this uncertainty, managing your finances can feel intimidating. But there are always things we can do to have a sense of control over the future, in spite of the inflation rises, interest increases, and the impact of the pandemic.

If you are feeling overwhelmed and unsure what the right move is for you currently, an experienced ear can help.

Contact one of the most experienced Mortgage Brokers in the country