That Home Loan Hub
Welcome to That Home Loan Hub, your ultimate guide to mastering the world of home loans and property. I'm Zebunisso Alimova, here to simplify the complexities of real estate and provide you with expert insights and the latest trends.
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That Home Loan Hub
Predicting the OCR Cut
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Ready for a financial shakeup? The Reserve Bank's upcoming October 8th OCR announcement has the mortgage market buzzing with anticipation. What started as whispers of a modest 0.25% cut has evolved into predictions of a substantial 0.5% reduction – the largest we've seen since the COVID emergency response.
New Zealand's economy is struggling, with GDP down 0.9%, prompting decisive action from financial authorities. We're diving deep into what this means for everyday Kiwis with mortgages. Currently, the best fixed rates hover around 4.72% for 1-2 year terms, with most longer options sitting below 5%. But after these anticipated cuts, we could see rates drop to approximately 4.5% for two-year terms – a welcome relief for households where mortgage payments consume up to 70% of income.
Understanding how these changes affect your home loan requires knowledge of both OCR and swap rates. While OCR directly impacts floating rates, fixed rates depend on a complex relationship between OCR and the wholesale rates banks pay before adding their margin. The timing creates an interesting dilemma for homeowners: should you break your current fixed term and pay the fees to secure lower rates now, or wait until your term expires? We'll tackle this critical question in our next episode, helping you navigate these changing economic waters with confidence. If you're facing mortgage decisions in this volatile environment, subscribe now so you don't miss our upcoming breakdown of whether breaking and refixing is worth it in today's market.
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Introduction to OCR Discussion
SPEAKER_00Kyoto, welcome back to that Home Loan Hub. Today I'm taking over the mic because our beautiful Zebonisa over here is slowly losing her voice. Um, but today our topic is OCR.
SPEAKER_01OCR.
SPEAKER_00So what does OCR stand for? Official cash rate. Hello, people. Um so there's another official cash rate announcement coming on the 8th of October this year. It's second to last one for the year. And then we're gonna put in our predictions. Predictions time. Yeah, I love it. Love the predictions time, you know.
SPEAKER_01What's the gamble team? All right.
Economic Performance and OCR Predictions
SPEAKER_01So, according to a lot of specialists, at first they were thinking about 0.25, weren't they?
SPEAKER_00Yes.
SPEAKER_01But since the latest reports that have come out, the economy's not doing well.
SPEAKER_00No, so GDP, um, so gross let's explain what GDP is. Go. GDP stands for growth domestic product. So um yeah, so our um domestic growth, New Zealand's economy, domestic growth, um, hasn't actually done as well as predicted. It's actually um dropped um 0.9%. Um so what that means is that our we the OCR will need to drop to stimulate the economy. So people need to start spending.
SPEAKER_01Correct, but people don't have money to spend. And the easiest way for them to find that money is when the government makes things cheaper for them, which is their biggest expense, is usually mortgages. This is where a lot of your money goes, right? I mean, probably some of you, 70% of your income goes towards paying your mortgage.
SPEAKER_00Yeah. Yep. So back to prediction. Back to predictions, baby. Yeah. Oh, it was written in that what 0.25. Now there's talks about 0.50 or even
Impact on Mortgage Holders
SPEAKER_000.75, I've heard in the grapevine as well. Yeah, that's huge. Now I'm like, okay, well, there's three choices. Which one do I pick? It's my prediction.
SPEAKER_01We haven't seen this big of a drop since COVID, I would say. Right? That's when in 2020, I believe, the economies wasn't doing really well, and that's when the government was going, all right, let's pull the sleevers, let's keep slashing the OCR, let's bring the interest rates down. So, in terms of that, I mean, 0.5, 0.5, or 0.75, which one's gonna be?
SPEAKER_00I'm going with 0.5. I don't think they'll go that roofless to 0.75. I think 0.5 is my prediction.
SPEAKER_01Okay. I I think I'll back you up on that. I think 0.25 is not gonna make much of a difference, as they've seen. This is our second to last review this year, and then we all shut down for a big holiday break and Christmas, etc. etc. And we're gonna come back. Uh,
Understanding Swap Rates
SPEAKER_01I think the next OCR review is in February, isn't it? So between November to February, they need to do something. Yeah, so I would say 0.5 this time and 0.25 in November. Yeah, same.
SPEAKER_00All right. Yeah, I'm about the same as well. So, what does that mean for you know mortgage um holders?
SPEAKER_01Like well, a lot of them are coming up of the refix rates at the moment, right? And we're gonna actually record another episode where the breaking right now and fixing is worth it because some of you may experience some really high break fees, but is it still worth it in the grand scheme of things? Yeah. So we'll come back to that episode. But what it means for our mortgage borrowers is the interest rates will continue to go down. Yeah. And hopefully that will release more money back into their pocket.
SPEAKER_00But I think something to be mindful of is that yes, OCR has an um impact on um interest rates, home loan interest rates, but also the swap rates have an impact on those interest rates as well. You may be thinking, what is a swap rate? What is a swap rate? So swap rate is basically what the um banks buy their money for um at you know X amount of interest rate, and then they add their margin on and then they sell it back to you as your mortgage rates that they advertise. So there's two players in that um sense for um mortgage rates. Official um official cash rates or OCR will have an immediate effect on the floating rates, um, though. So if you see the 0.5 cut, that would usually flow on to effect on the variable rate. But in terms of the fixed rates, it's the swap rates and the OCR that is affected in that. But I still think we're gonna see hopefully 4.5s.
SPEAKER_014.5s. I hope so. I think at the moment we're sitting the lowest rate for one year, 18 months, and two years is
Looking Ahead and Episode Preview
SPEAKER_014.72, right? And then for six months we're sitting at 4.95. Yeah. And then the longer terms are usually a bit higher, but most of them are sitting below 5%. Yeah. So I think point 4.5 for two years would be a good deal. And to be honest, I mean, some of the floating rates at the moment are lower than what some of the fixed rates people are still on. Yeah, exactly. So that brings us to our next episode. So stay tuned. We're gonna cover off whether you should refix and break now or whether you should just wait it out and whether it's worth it. So cool. Stay tuned. Thank you so much for this episode.
SPEAKER_00Bye.
