The OCR Is Up Again so What Does That Mean for Mortgage Holders?

RBNZ Has Raised the Official Cash Rate (OCR) Again

While not totally unexpected, this month’s big news is another rise in the OCR.

RBNZ has raised the rate to 3.5% with more raises expected going forward.

The Reserve Bank said monetary conditions needed to tighten further to maintain price stability and employment levels.

Despite a dip in oil prices and an easing of supply chain issues, core measures of inflation have risen globally. [source]

Kiwi bank economist Jarrod Kerr noted that the change will likely add more pressure to New Zealanders with a slowdown in discretionary spending and more increases in the cost of home ownership. [source]

So, what does that mean for mortgage holders?

If you are starting to feel the strain of rising living costs, it might be time to review your mortgage and look at how the repayments continue to fit into your monthly budget.

Mortgage Review – Depending on your circumstances, we may be able to offer some relief such as:

Increase the term of the mortgage to reduce payments (a full application is required)
Consolidate any short-term debt commitments into the mortgage (a full application is required)
Review the current mortgage structure to ensure it still fits your requirements as there may be other options that now suit you better.
Advise whether it would be cost-effective in the long run to break a fixed mortgage term.

Please note, when reviewing your mortgage there is a lot to consider such as:

your short-, medium- and long-term mortgage your goals
the current economic conditions
what do you think interest rates might do over the next 1-5 years
how long stability of your repayment is required
how often do you want to review the mortgage

These considerations are different for every mortgage holder so there is not one solution that fits every client.

Mortgage Review and Refix Service

Please note I do continue to offer an annual mortgage review and refix service, so always feel free to contact me for assistance or an independent second opinion.

Clients on Discounted Interest Rates for Build Loans

The discounted build products continue to have a discount off the current floating interest rates.

These typically last for 24 months from the time of the first drawdown of the facility.

It is time to review these products for completed builds?

There are two options (or considerations) to be aware of:

Continue with the discounted floating rate for the full-time frame that is available, then fix it at a negotiated fixed rate.

The problem here is, what will the fixed rates be when the build discount comes off at the expiry of the 2-year build discount period?

Cease with the build discount now and fix before fixed rates go higher and lock in for say 1-3 years in the mid to high 6% range.

With the current economic environment, everything seems to be pointing to rates continuing to go up and stay reasonably high for the next 1-3 years.

What is the best option for you?

So as mentioned above, when deciding on which option to take please keep in mind your mortgage goals, current economic conditions, what you think interest rates might do over the next 1-5 years, how long stability of repayment is required & how often you want to review the mortgage.

If you believe interest rates will stay the same or drop over the next 1 year to 18 months, then you would probably consider a shorter-term rate.
If you believe interest rates will stay the same or move up over the next 1-3 years or more, then you might consider a longer-term rate.

At the moment, clients are selecting a range (mix) of options:

Continuing with the build discounts
Locking in for 1 year and rolling over at the end of each fixed period. The 1-year rate is always the fixed term that moves up the quickest but is always the first to fall once stability in the marketplace returns.
Locking in for 2-3 years to give a little more stability but believing that the market will stabilise and rates either stop increasing or will start to fall in time for refixing the next time around.
I have had 1 client fix for a longer-term rate, but most are not locking in for 4–5-year rates at present, but once again if long-term stability is required, it could be the right option.

Auction Sales Are Improving

After a sluggish few months, auction sales appear to be on the rise.

The latest figures from interest.co.nz show that in the last week of September, 75 properties sold under the hammer – a sales rate of 41%. This was up from 33% a couple of weeks ago. [source]

Barfoot & Thompson’s activity was also on the rise after a slow period. The agency is the biggest in Auckland, and it auctioned 90 properties at the end of September with the number of sales also up. [source]

Auction has always been a viable method for the sale of a property.

Even if it does not immediately sell under the hammer, it does help to draw interest to your property.

So if you are considering taking your home to auction or bidding at auction, let’s have a chat now to see what your options are.

This is especially important if selling and buying at the same time.

Lenders are not supporting open bridging finance at the moment, so I’m happy to talk through the timing of the settlement of the existing property and the settlement of the new property.

Are Prices Still Falling?

Trade Me’s Property Price Index shows property listing numbers are still rising.

However, property sales aren’t increasing at the same level and unfortunately, it would appear that prices are still falling.

Some regions had more than double the number of properties for sale in September compared to the same time last year, with supply outstripping demand.

Property Sales Director Gavin Lloyd said if supply kept outperforming demand, then prices would fall further.

“Prices are falling as a direct result of sky-high supply paired with comparatively low demand, taking the pressure off buyers and forcing sellers to lower their price expectations”, he said. [source]

What does that mean for buyers?

Well, falling prices are still good news, but set against rising mortgage rates and increased cost of living making it difficult to have extra money to save, buying a house can still be tricky, but, not impossible.

We can help you look at all the options for lending to ensure you get the deal that suits you best, so give us a call to discuss.

Fewer Home Loans

The latest figures show that mortgage lending volumes are still weak, and the number of loans made in September was the lowest for the month since 2013.

Report author CoreLogic says both investors and owner-occupiers are struggling.

CoreLogic chief property economist Kelvin Davidson said low equity (deposit) loans were particularly hard to secure.

“Given continued falls in property values, it’s not hard to understand a cautious attitude from the banks when it comes to approving loans to borrowers who already have lower equity levels”, he said. “With housing affordability still stretched and mortgage rates higher, it’s likely that fewer borrowers really want a high LVR loan either.” [source]

In saying that, lenders are still willing to give funds to those that can present a quality application.

So, if you have been considering if now is the right time to make a move in the property market, let’s talk about your options.

With house prices falling, there are some great buys out there, so it’s worth doing your homework now, allowing you to pounce if the right opportunity arises.

Give us a call today for honest and trustworthy mortgage advice.

If you have questions about any of the ideas raised here or just want financial advice you can trust, get in touch with Oliver Broomfield Mortgage & Insurances today.

Frequently Asked Questions

Why use a mortgage broker?

The advantage of using a mortgage adviser is that they can negotiate with a number of lenders to find the deal that best suits you. They do all the leg work for you, saving you time.

Why don’t I just go to the Bank myself?

We help assess all your options, whereas the Bank is restricted by being only able to present one view.

Is it better to use a mortgage broker or a bank?

While banks expect the client will negotiate with them, or accept the given rate, mortgage brokers are more likely to go to bat for you, to get a lower interest rate.

Why choose Oliver Broomfield Mortgage & Insurances?

Our processes make financing your house purchase easy; providing quick personal service that takes the stress out of financing your home loan. With our wealth of experience in the finance industry, we know how to get the best deal for you.

Can I organise a mortgage without meeting in person?

Absolutely! We can still work with you using email, phone calls, and video calls. Whatever your financial situation is, we have a range of options to communicate with you whatever circumstances.

Can my application be done via the internet?

Yes, we have an online application system or a pdf form that can be completed. Supporting documents can either be uploaded directly into our system or emailed. We can use telephone, zoom, or email for further clarification or look at scenarios and receive and send information.

What is a home loan pre-approval?

A home loan pre-approval is a conditional approval confirming that we can lend you a certain amount of money, provided the property you purchase meets the lender’s home loan criteria. It’s a good idea to ask us for a home loan pre-approval before you start house hunting. It will help you determine how much you can borrow and to give you some bargaining power when negotiating a purchase price.

How much deposit do I need?

Saving a deposit is probably the biggest hurdle for most first home buyers. First home buyers need to have saved at least 5% deposit with 20% or more being the optimum. Remember that this can be made up from a KiwiSaver first home withdrawal and some first home buyers may also be eligible for a HomeStart Grant. Gifts and deed of debts from friends and family are also common.

Can I buy with less than a 20% deposit?

While there has been a lot of publicity about the need for home buyers to have a 20% deposit; there are still options available for you. We can talk you through what may be available to you including:

The ability to access low equity loans
Using your Kiwisaver contributions towards your deposit
Building your own home
Accessing parental assistance to increase your deposit.

Why does the size of my deposit matter?

The size of your deposit makes a big difference to the interest rate and the other costs you could potentially pay on your home loan. Generally, for lending where the deposit is less than 20%, the lender will also charge a Low Equity Fee (LEF) or Lenders Mortgage Insurance (LMI). Interest rates may also be higher for loans with a low deposit.

What do banks look for when applying for a mortgage?

Whilst assessing a loan application, banks will scrutinise your bank account (usually the most recent 3 months bank statements).

In particular, they are looking at how well (or not) you manage your account.

Do you have dishonors, and or unauthorised overdrafts?

The better your account conduct the better your chances!

The banks also want to make sure all expenses including fixed and discretionary costs are included in the mortgage application expenses.

How much can I borrow for a first home, rental property or build?

This will be determined by your income, your capacity to repay the loan, and the property type along with the current lending restrictions imposed by the reserve bank. Contact us today to find out.

How much do I need to earn to obtain a loan?

The income you will need to earn will depend on the size of the loan, the bigger your loan the more you will need to earn.

As a rule of thumb if you are a first home buyer who is currently renting and have also been able to save some money there is a good chance you will meet the banks’ income criteria.

What is LIM Report (Land Information Memorandum)

A LIM report is a summary of information that the local Counsel hold on a property. The report covers off information regarding consents, permits, code of compliance, potential erosion, subsidence, flooding of any type and the possible presence of hazardous substances. private and public stormwater and sewerage drain, rates, including any overdue rates.

Your solicitor should review this document.

Can I buy a second home or investment property?

Absolutely, we do this every day for many existing clients. We can use our scenario calculator to ensure you meet lender criteria and affordability for yourself.

I am an overseas resident. Can I borrow money in New Zealand?

Yes, you can borrow money in New Zealand and may be able to borrow up to 80-90% of the purchase price of a home.

Can I withdraw my Kiwisaver?

To be eligible to for the KiwiSaver First Home Withdrawal Scheme you must:

Be purchasing your first home;

Have been a member of KiwiSaver for a minimum of three years;
Have your KiwiSaver account with a KiwiSaver provider that allows saving withdrawals; and
Intend to live in the property for at least six months
We recommend that you contact your KiwiSaver provider and check their individual policy on withdrawals for first homes.
If you are eligible to withdraw money from your KiwiSaver, you may also be eligible for a first home deposit subsidy of up to $20,000.00 from Housing New Zealand – known as a HomeStart Grant.

What costs should I expect when buying a home?

Using a mortgage broker generally means no direct costs to you for their services but there are other unavoidable costs. These may include:

A Registered Valuation ($800 – $1,200)
Solicitor Costs ($800 – $1,500)
LIM report ($150 – $400)
Builder’s Report ($100 – $500)
Weather Tightness Report for Monoclad houses ($300 – $1,000)
Finance fee for non-bank lending (~1%)

Prices can vary. Always request a quote before ordering any of these services.

Is getting a mortgage complicated?

The banks all have different policies and risk tolerances. Buyers can get frustrated and waste a lot of time going to banks that won’t suit their needs.

Using a mortgage broker gives you a view of all the banks and their policies. It means you find the right bank faster and with less stress. With a mortgage broker, getting a mortgage isn’t complicated.

It’s about proving you have enough deposit and enough income and then heading to the right bank with that information.

Some tips to making your mortgage application easier: get your documentation sorted early and keep your spending as low as possible in the 3 months leading up to your application.

Do mortgage brokers obtain loans from the banks or lenders that pay them the most?

We will always act in the best interest of the client and will ensure that any deal we broker is the best we can do for the client.

While there can be variances in the amount different lenders pay us we do not favour any particular lender for this reason.

We are also members of NZFSG & Financial Advice New Zealand both of which have ethics that we must adhere to.

We can also be audited at any time by the FMA (Financial Markets Authority)

If the banks pay a commission is this then added on to the cost of our loan?

No… The lenders that use our services see us as an efficient channel to obtain business from. They only pay us on success i.e. when the loan settles.

We sit alongside their other channels such as a bank branch or mobile manager.

The cost of obtaining business from a mortgage broker is comparable to these other channels the banks choose to use.

For this reason, it will cost you no more to use our services.

What if I sell my home or refinance my mortgage shortly after using a mortgage broker?

Mortgage advisers (often called mortgage brokers) are paid by the bank when a mortgage is drawn down. If that mortgage is discharged (repaid and closed) within a short amount of time – typically 27 months – the broker must repay some or all of the commission (often referred to as a clawback). In this instance, the mortgage broker has essentially done the work for no pay.

We reserve the right to charge for our time if a clawback is incurred. The fee will be the estimated amount of hours the mortgage took at an hourly rate of $250 per hour. Unlike other fees, such as Break Fees from the bank, we have capped the amount we can charge clients at $2,500.

If you are refinancing or selling your house, the best thing to do is immediately talk to your adviser and discuss if any clawback fees will be charged.

Should I own the property in my own name, or a Trust or Company?

If the property is for you to live in, this is something you should discuss with your Lawyer at your initial meeting. If it will be an Investment Property, you should discuss with your Accountant. We would also suggest you find a property accountant, someone who deals in property all the time rather than just as a side part of their business.