On Thursday 11th August, the Reserve Bank of New Zealand (RBNZ) cut the official cash rate (OCR), to a historic low of 2% in an attempt to help keep inflation at acceptable levels for the Government.
By Friday, all the major banks – ANZ, Westpac, Kiwibank, ASB and BNZ – had reacted to this and cut their rates, however, it was not by the full 0.25%. It seems most are holding back some margin due to higher funding costs in other areas. Yet, Kiwibank noted it was offering the lowest variable rates since opening in 2002.
Wondering how this will even affect you? Here it is broken down in plain English:
What the OCR affects:
The OCR tends to directly affect deposits and floating mortgage rates – plus, to an extent, short-term fixed mortgage rates. For example, Standard floating rates are currently around 5.65%, so in theory these could drop to 5.40%. However, most banks tend to give good discounts off their floating rates for those with 20% equity.
In Simple Terms – Why Drop the OCR?
This has been implemented to try and hold the NZ dollar from climbing further – ironically the dollar rose after the OCR cut was made.
Advice for leveraging off this?
- You most likely will still need a good range of short, and long term rates in your mortgage structures – plus some on floating.
- Mortgage structure is more important for saving on interest in the long term – this is where impartial mortgage advice from a mortgage advisor is invaluable!
- Borrowers should check if their fixed rates have expired as they may revert to the higher standard floating rate. Banks won’t give you a discount on floating, unless you ask for it.
It will remain to be seen just how much banks will cut their floating rates and short term fixed rates by in the near future, nevertheless, in order to make the best informed decision in this area, seek advice from your Craig Pope Adviser.