You’ll already be aware that the OCR stayed flat last week and that a very clear easing bias remains.
It’s difficult to read this yo-yo market as there are plenty of ups & downs to factor in which leads to the middle-ground decision just made! Whether the OCR gets cut again is clearly a borderline call. We’ve still got housing market strength & a relatively high foreign exchange rate - in my view, the main reasons there’s a game of cat & mouse going on.
Moving the OCR has little influence these days as people tend to lock in a good portion of their borrowing, So, with that in mind, what other non-monetary controls can the big boys play with? Is something new about to be introduced? I note that high-LVR (lending value ratio) restrictions and government policy measures to slow investor demand tend to have been dissolving in terms of their effectiveness. I think we’re going to see wider LVR restrictions introduced for the provincial boom towns – time will tell!
Auckland and nationwide house prices surged to new record highs and regions appear to be booming. Residential consents issued are reducing in numbers and record annual net Permanent Long Term “PLT” immigration makes the construction sector response a moving target. Households are exhibiting leveraging-style behaviour patterns which look set to continue for a while yet — that actually concerns me! The longer this carries on, the greater the risk of a correction in the market – particularly the provinces where population isn’t growing and house sales are linked to investors. Where will all of the tenants keep coming from? Watch that space – time to start being a little careful people!
Where next with the OCR? I’m placing my money on a 0.25% cut on 9th June 2016 and if that doesn’t happen, definitely on 11th August 2016. Remember it tends to take a further 1-2 weeks for any flow-on from the banks as they like to line their pockets a while longer.
What would I do with my lending? Unless I was already on fixed rate (that I’d get Tracey to run break cost analysis against), I’d sit on variable until June and possibly lock a portion in for 1-2 years. Maybe even out as far as 3 years if the rate was exceptional. Those interest rate terms seem to be the best value for money and with OCR predictions expected to remain flat/lower through to 2017-2018, I believe it makes little sense to lock in for longer.
To break or not? Do NOT make the mistake of waiting until your present rate is due to expire! It always depends on the numbers. We note that banks tend to be very re-active on these matters, whereas we at PFG encourage you to get us to test your numbers to see if it’s economic to do something or not! Easily 85% of the time it makes sense to do something.
This “test” service is completely free! All you need to do is send an email to firstname.lastname@example.org with a list of your present loan account numbers and balances, asking her to review your break costs and negotiate new interest rates. She will then run the numbers and report back on the best thing for your unique situation. Typically we save people a considerable amount of money and reduce the term of their mortgage with lower interest rates!
You can read more about the Governor’s comments and the Monetary Policy Statement here.