While we wait for our next Government to be formed the Reserve Bank has left the official cash rate at 1.75 per cent and given a subtle warning that the slowing construction sector could affect New Zealand’s economy.
Last week’s announcement was an important indicator of what the central bank predicts will happen over the next 12 to 18 months, particularly coming off an election. Of course, a new Government won’t be formed until after the special votes have been counted in October. This complicates the forecast, especially since the outcome of those votes will affect housing policy and the economy.
Labour has said their Government will crack down on speculators with a range of measures, including banning foreign buyers purchasing existing homes. Meanwhile National has pledged to double the HomeStart Grant for first home buyers. Both are promising to build more homes.
Banks, economists and mortgage advisers always look closely at the Official Cash Rate (OCR) announcements for two reasons—one to understand why the OCR has been changed or left the same, and the Reserve Bank’s economic forecasts.
Last week particular mention was made of the economy ‘softening’ against our recent accelerated growth. In real terms, this means the growth may slow down, and could be influenced by policy changes made at a higher level. An example of this would be reducing immigration—particularly with the regions depending on the migrant workforce. The Christchurch rebuild could be another influencing factor, as the pace falls back slightly.
Our national housing market is already slowing, despite Kapiti’s local bubble, which has lead to more people calling for the LVR restrictions to be relaxed. No mention was made of this last week by the Reserve Bank, but an indication that if they were to be rolled back, it would be done gradually. I believe that any relaxation of the restrictions will be aimed at owner-occupiers, and would remain for investors or overseas buyers.
If, in amongst all these what ifs and maybes, you have a mortgage due to be refixed and you aren’t sure what to do, give us a call. We’ll be able to work out the best scenario for you and help protect you against risk.