Last week, the Reserve Bank of New Zealand delivered the biggest Official Cash Rate (OCR) hike in 20 years – taking the OCR to 4.25%.
The increase to the OCR means we are likely to see further increases in interest rates as the cost for the bank to borrow money to lend to you and me is now higher. With many mortgages rolling off very low interest rates and onto much higher rates in the next three to six months, borrowers will really need to monitor their spending habits to make sure the higher repayments fit into their budget – i.e. a $800,000 loan that was fixed at 2.99% coming off in today’s high interest rate environment, would see an increase in repayments of approximately $1,600 per month. So it’s going to be a matter of prioritising the wants and the needs to make sure you are able to afford that extra mortgage repayment.
How can you prepare for future OCR increases?
OCR is used as a tool to get inflation under control i.e back to a nice 1%-3% (we are currently sitting at 7.2%). We can probably expect further increases to the OCR in 2023 while the Reserve Bank tries to get things under control.
To prepare for future OCR increases we are advising our clients to start financially preparing for the higher rate 6 months out from expiry. For borrowers that may 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 to free up the cash, or potentially refinancing to take advantage of cash incentives to subsidise the extra repayments.
Banks are currently competing for good business and offering up to 1% cash contribution. One of the banks is even offering a free solicitor service for refinance (talk to us to find out more).
We aim to get our clients through this stormy period with good budgeting advice without the need to resort to interest only or mortgage repayment holidays. This increase to the OCR has been very well publicised in the media and as such, I hope that more and more Kiwi’s reach out to an expert Mortgage Adviser for help and guidance, as they navigate how to structure their mortgage and finances going forward.
There is a lot of uncertainty out there at the moment and in today’s environment, quality advice is more important than ever. Be rest assured, 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. In the meantime, please get in touch if you require a personalised financial advice.
A T Realty Group wins Agency of the Year at the 2025 REINZ Awards, with Richie Lewis named Manager of the Year. Award-winning real estate in South Auckland.
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