The Reserve Bank left the Official Cash Rate unchanged last Thursday at 2.50 percent
With a new Reserve Bank Governor at the helm Thursday’s annoucement was what many had expected. That been said some economists are now expecting that by March there is a 50% chance that the OCR will be lowered again if current economic conditions have not strengthened. Graeme Wheeler noted in his comments that the NZ economy remains fragile. Inflation now is officially under 1.0%. The high kiwi dollar is continuing to hurt NZ exporters but is keeping imported consumer goods low. We believe that the OCR should be cut as inflation is no longer an issue and exporters need as much help as they can get. The Australian Reserve Bank is thinking of making further cuts over the next few months to their OCR. We would be wise to follow suit.
So, should float or fix my mortgage?
Again as far as Kiwi home owners are concerned there is little likelihood that we’ll see interest rates move away from their current 40 year lows anytime soon. Without been too optimistic rates could be at their current levels for at least another 12 months potentially. Banks have started orchestrating a campaign of cheap fixed rate specials (attempting to lock in borrowers to retain customers) but in our opinion floating still makes more sense. Most people do not realise that with pressure from a mortgage broker like ourselves the banks will discount heavily their advertised floating rates making it usually cheaper to float at present and positioning you better to lock in a good long term fixed rate when rates do move steadily upwards. We have potentially not seen the end of rate cuts either so anyone floating their mortgage would be the first to realise any potential reductions also.
A more likely scenario though is that the current status quo of cheap rates will be with us for the foreseeable future. As much as we continue to favour floating at present there are some very good negotiated fixed rates now on offer. For people wanting guaranteed certainty with their repayments fixing gives them this security. As always any decision to fix or float is based on the individual borrowers own personal circumstances.
Please contact us if you or a friend or family member is looking at a new mortgage or has one due to expire. Deciding on an appropriate interest rate strategy is one of the biggest financial decisions you can make with respect to your available household income over the next couple of years. The banks are very quick to entice borrowers with a good short term or floating rate today but a lot of thought needs to be given to what interest rates will be doing in the future. We are more than happy to lend our experience and expertise to your decision and negotiate with the banks on your behalf to ensure that they give you a good deal.
Kind Regards
Simon
Source Reserve Bank of New Zealand.
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