And it's going to hit mortgage holders hard
The Reserve Bank of New Zealand has lifted the official cash rate by 75 basis points to 4.25%, with lender interest rates expected to rise in due course.
Wednesday’s increase is the ninth OCR rise in the last 13 months. The RBNZ board, which gathered on November 23 for the last meeting of 2022, lifted the cash rate in October 2021 from 0.25% to 0.5% and has continued increasing it at each board meeting since.
The OCR is now sitting at its highest point since December 2008.
Speaking on its decision, the board agreed that the OCR needed to reach a higher level and sooner than previously indicated, to ensure inflation returned to within its target range over the medium term. The board said core consumer price inflation was too high, employment was beyond its maximum sustainable level, and near-term inflation expectations had risen.
It also said global consumer price inflation was broad based and remained heightened. The ongoing slowdown in global growth would affect New Zealand through both financial and trade channels, and impact on people’s confidence due to uncertainty.
The RBNZ board will not meet again to decide on its next OCR move until February 2023.
Read more: Hike it like it's hot: RBNZ expected to lift rates by historic 75 bps
Cameron Marcroft (pictured above), NZ Adviser’s Top Adviser for 2022 and director of Auckland brokerage Loan Market Central said the latest decision would result in more Kiwis seeking a mortgage adviser for expert help and guidance as they figure out how to structure their mortgage going forward.
Loan Market Central was named as the Best Mortgage Brokerage Firms in New Zealand. Read the full report here.
“There is a lot of uncertainty out there at the moment and in today's environment, quality advice is more important than ever,” Marcroft said.
“As advisers, I think we have had a golden run over the past few years and now this is where we really get to shine, by creating a clear and sustainable game plan to help our current clients weather this storm and ride the wave out. The golden weather will return and we want to make sure all of our clients are covered and in a good position to take advantage of the market when it does.”
Marcroft said unfortunately New Zealanders were likely to see further increases in interest rates.
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“With many mortgages rolling off very low interest rates and onto much higher rates in the next three to six months, mortgage borrowers will be needing to monitor their spending habits to make sure their higher repayments fit into their budget,” he said.
“For example, a $700,000 loan that was fixed at 2.99% coming off in today's high interest rate environment, would see an increase in repayments of approximately $1,300 per month. So, it’s going to be a matter of people prioritising their wants and the needs to make sure they are able to afford the extra mortgage repayment.”
Marcroft said people had been advised all year to spend carefully, budget wisely and save wherever possible as living costs continued rising.
“To prepare for future OCR increases, we are advising our clients to start financially preparing for the higher rate six months out. For borrowers that might struggle with the change, we will need to do a thorough analysis and consider options such as increasing loan terms, consolidating any short-term debts, or potentially refinancing to take advantage of cash incentives to subsidise the extra repayments,” he said.
“Hopefully as advisers, we can help these clients through this stormy period with good budgeting advice and they won’t need to resort to interest only or mortgage repayment holidays.”
