On Wednesday the Reserve Bank announced a 0.25% reduction in the Official Cash Rate from 1.75% to 1.5% – the first cut since late 2016. The OCR – essentially the wholesale rate at which banks borrow money to lend to retail borrowers – directly impacts retail mortgage rates, so its no surprise that banks have been reducing their rates as a result. ANZ and Kiwibank were first first movers, with floating and 1, 2, and 3-year rates lowering by up to 0.14%.
Retail mortgage rates are now well under 4% in many cases, with 1-year rates from several of the major banks at 3.89%. So, pretty low – although none of the banks have yet seen fit to pass on the full 0.25% reduction. The flip side of lower lending rates is not so good for savers however – the main banks have all taken the hatchet to deposit rates, with various term deposit rates reducing across the board, and on call savings accounts lowering as well.
Implications? Well, there has been plenty of commentary and observation in the past 24 hours of the possibility of this re-igniting the housing market. I’m not completely convinced, particularly with the potential for changes in capital reserve requirements to hike rates again, but it’s hard to argue that borrowers have rarely had it better. This will continue to make life tougher for investors though – if you’re heading towards retirement, a low interest rate environment may mean some difficult decisions.
Things are starting to look more positive for first home buyers. The combination of historically low interest rates, flat to declining house pricing, and low unemployment levels are starting to make life easier for those looking to get a foot on the ladder, assuming they can make it through undeniably tougher lending criteria. Property investors are another group we’ll be paying attention to over the coming months – are lower rates, lower prices, increasing rents, and the death knell of CGT enough to kick some life back into the residential property market?
If you’re thinking about home ownership, or you have a mortgage currently, we’ll be looking quite closely at options for you over the next few months. Low rates like this are an excellent opportunity to reduce your principal more quickly; there are some great buying opportunities out there if you’re got good income and servicing and have been thinking about an upgrade or investment property; and now might be a good time to have a think about reviewing your mortgage structure too. Drop us a line if you’re like to have a chat about your options!