OCR Update 23/07/2015

OCR reduced to 3.00%

With a future reduction "likely"

Reserve Bank Governor Graeme Wheeler today reduced the Official Cash Rate by 25bp to 3.00 percent and stated that "at this point, some further easing seems likely".

Highlights from his statement include:

  • "New Zealand’s economy is currently growing at an annual rate of around 2.5 percent, supported by low interest rates, construction activity, and high net immigration."
  • "House prices in Auckland continue to increase rapidly, but, outside Auckland, house price inflation generally remains low."
  • "The growth outlook is now softer than at the time of the June Statement. Rebuild activity in Canterbury appears to have peaked, and the world price for New Zealand’s dairy exports has fallen sharply."
  • "Headline inflation is currently below the Bank’s 1 to 3 percent target range, ... annual CPI inflation is expected to be close to the midpoint of the range in early 2016.

Importantly for those wondering when the Auckland property boom will end: "Increased building activity is underway in the Auckland region, but it will take some time for the imbalances in the housing market to be corrected."

 

New Government and Reserve Bank Regulations

A reminder that these come into effect from 1 October 2015 requiring a 30% deposit on residential investment properties. You may be able to leverage equity from your existing property to achieve this, so talk to us.

 

Interest Rates

Typically the floating rate will drop in the next few days for new customers to a bank and in a couple of weeks for existing customers.

Here is the current yield curve. The blue line is as at today; the red line is this time last year, and the yellow is from 2013.




Here are the current Swap Rates. As you can see, the 7 and 5 year swap rates that had started to tick up last time are now on their way back down again and are the lowest they have been this year. We anticipate this will result in a reduction in the discounting we have been seeing at these levels.




Bank margins are at the higher end of their range (since we have been tracking them over the past 2 years) suggesting reasonable discounting should be possible.





Talk to us if you would like to discuss a "back door short term float" to reduce your interest and increase your principal decimation.

 

Rates at record lows - time to smash that principal

Not the head of your primary school! With rates at record lows, you need to be taking advantage and overpaying your mortgage. 

Don't believe us? On a $500,000 mortgage with a 5.50% average interest rate, an extra $10 per week will reduce the loan term by 1.11 years (~$38k). An extra $20 per week will shave off 3 years; $30 per week knocks off 5.5 years and an extra $50 a week slashes a third (yes 10.5 years) off your mortgage. That is a whopping $400k that you don't pay in the last 10 years which makes the start of a great retirement.

So give up a two bought coffees a week and watch your loan balance plummet!

 

Disclaimer

Everyone's circumstances are different. This statement does not constitute advice and is a general commentary on the current market. If you would like to discuss your specific situation, please call us to discuss. If you would like to lock in some rates, we can assist you as required. Due to privacy, we will need an email from you authorising us to access current information on your loans.

 

Cheers



Louise, Tyrone, Pete and the team at Keystone Advice Group