With the official cash rate rising by another 0.50 per cent in early October, and more increases expected for November, February and April, it looks like we haven’t yet hit the top of the interest rate cycle.

About this time last year we were still surprised interest rates were increasing, yet only 12 months later we have seen the official cash rate increased eight times in a row since last October. The last five increases have been by 0.50 per cent each time, putting us at a current OCR of 3.5 per cent. This is likely to now go to 5.25 per cent or higher over the next six months.

The reason is inflation (CPI) numbers are still far higher than they should be. Expectations for the September quarter were around 1.5-1.8 per cent, and actual results were coming in at 2.2 per cent. Keep in mind, that is for the quarter, the RBNZ mandate is for this to be between 1-3 per cent annually.

HIGHER PEAK

While the OCR doesn’t always have a direct correlation to increasing fixed interest rates, it can mean we may expect a higher peak in interest rates than previous predictions. While many were happy to consider short-term interest rates at a time like this (one-year for example) it might now make sense to fix some debt on a bit of a longer term. This might assist with extra certainty in an uncertain time (assuming those rates are affordable for you at present) but gives you the opportunity to avoid any surprise upward jump in rates in the months ahead.

The cash flow effect of rising interest rates has increased significantly for property investors with nondeductible debt.

Another thing to be aware of, of course, is the increase to floating interest rates when the OCR goes up – this typically does occur, in the bank and non-bank sectors – so keeping an eye on your mortgages when it comes to this would be prudent.

BANK COMPETITION

As borrowing costs go up, savvy investors review their existing mortgage strategy and property portfolio to assist their cash flow position during a tighter time. When inflation occurs we see the cost of goods and services going up, which is harder on consumers, and that coupled with the cost of debt going up can be a large shock to many households.

There is certainly competition between banks, and broadly speaking we’re seeing NZ banks undercut the big four Australian banks in many fixed interest rate terms. Cash contributions are another area that banks are competing fiercely, with some lenders offering as much as a 1 per cent cash contribution (based on the loan size, capped at a certain amount depending on the bank) for those who meet criteria. As a result there’s no better time to review your mortgages and determine what strategy is best for you, and see which lenders are willing to make the best offer for your business.

The interest rates specified in this table were accurate on 17/10/2022. Interest rates are subject to change without notice. Different fees and charges apply to each loan depending on the mortgage lender. Seek expert advice to determine the mortgage lender that is right for you and your circumstances. A Disclosure Statement is available on request and free of charge. Data provided by tmmonline.nz