Ice cold interest rates: OCR predicted to drop below 0%
Mortgage interest rates in New Zealand are lower than they’ve ever been. On top of this, the OCR could be about to drop even further from March 2021 – if forecasts from major banks are to be believed.
Let’s take a closer look at the likelihood of further rate drops and what that could mean for everyday Kiwis.
Are interest rates about to drop?
The Official Cash Rate (OCR), or the rate at which retail banks borrow from the Reserve Bank of New Zealand (RBNZ), is one of the main factors that affect mortgage interest rates.
The RBNZ dropped the OCR to a record low of 0.25% in March 2020, stating it would hold there until March 2021, where it would undergo another review. These changes have been impacted by COVID. For the last few months, most retail banks have predicted that the OCR would drop from 0.25% to below 0% in 2021, most likely in March when the RBNZ undergoes the review. The governor of the RBNZ even sent a letter to major banks back in May 2020 asking them to be prepared for the possibility of an OCR drop by the end of the year.
It’s not a certainty yet, but it’s looking like we will have an OCR of either -0.25% or -0.5% in just a few short months.
What does a negative OCR mean for you?
If the OCR does drop again, all New Zealanders will feel the effects in some way – especially those who are looking to buy property or refinance their mortgages.
The OCR drop would almost certainly cause home loan interest rates to decrease, even though they’re already lower than ever, with this year bringing off-and-on rate wars between the major banks. A low mortgage interest rate at the time of writing in Nov 2020 is about 2.5%, but next year, rates below 2% could become the norm.
This, of course, means that the cost of servicing a mortgage may be cheaper and you may be able to afford to buy a more expensive home (if you have the required deposit).
Unfortunately, for those who don’t own property, this could mean that house prices are likely to continue increasing in 2021. The low interest rates stimulate demand for property, and heightened demand will likely push prices up.
Should I buy property now?
With interest rates lower than ever, an active global pandemic, and house prices going through the roof, we’ve had so many clients ask us whether now is a good time to buy property. Our answer is always the same: “That depends on your personal financial situation.”
If you’re ready to buy, low interest rates and rising house prices mean that now could be a great time. After all, interest is the highest cost of most home loans.
On the other hand, if you’re not ready to buy a home, there’s no need to rush into it. Low interest rates will be around for a while – take your time when making a decision as massive as buying property.
Need a hand making your mind up or financing a home purchase? Give the team at Money Empire a call for impartial expert advice and assistance – free of charge.