Property Investment
Trump's tariffs and the impact on NZ
Private Property issue #153
Mortgages
3 min read
Yesterday, the Reserve Bank cut the OCR by another 0.5%.
This will lower your mortgage interest rates.
But how far will they fall? And where will the OCR go next? Let’s dig into the data.
The Reserve Bank thinks it’ll cut the OCR even faster
The Reserve Bank thinks it’ll cut the OCR even quicker than it thought just 3 months ago.
They’ve penciled in an extra 0.5% of cuts over the next 7 months. That’s compared to what they thought just 90 days ago.
And it looks like we’ll get another 0.5% cut in the OCR in February 2025.
At the press conference, the Reserve Bank Governor, Adrian Orr, said:
“If economic conditions continue to evolve … as projected, the committee expects to be able to lower the OCR further in the new year. In fact, early next year.”
He was also asked if there was any risk of the OCR increasing. He replied:
“I would say at this point, we can rule out [that the OCR] go[es] up in the near term, without doubt … So there's no concern about that.”
That’s because the Reserve Bank now thinks inflation will be a bit flatter over the next 6 months.
How much will interest rates go down?
Most banks have already cut their floating rates by 0.5%.
But, in terms of fixed rates, ANZ and Westpac have made a few modest cuts.
They’ve chopped 0.2% off their 1-year rate.
Both banks are advertising 5.79% for 1 year, down from 5.99% earlier this month.
That saves another $15 a week on a $500k mortgage.
All up, a $500k mortgage is now $122 a week cheaper than it was at the start of the year.
That’s if you’re paying it off over 30 years – and comparing the 1-year rate at the start of the year to today’s rate.
Though, it depends on what interest rate you’ve fixed at. And how long you’ve fixed for.
A few more banks may cut their rates over the next week.
But, this round of mortgage interest rate drops will be smaller than earlier in the year.
This matches up with what I’ve been saying to property investors. A lot of the future OCR cuts are already priced in.
So when the OCR drops … banks will drop some of their fixed interest rates.
But it’s not a 1 for 1 relationship. It’s not that if the OCR drops 0.5%. The banks cut 0.5% of their rates.
Because those big drops have already happened.
The floating rate is a different story. If the Reserve Bank cuts the OCR 0.5%. The banks almost always drop their floating rate by the same amount.
Some banks are letting you borrow more
Though, it’s not just the mortgage interest rates that are falling.
ASB will drop its servicing test rate on Monday.
Earlier in the week, they would test your mortgage application at 8.1%.
From this coming Monday, that drops to 7.6%.
If you can afford to borrow $500k for an investment today … you might be able to borrow an extra $40,000 on Monday.
The exact extra amount you can borrow depends on your situation. So, chat with your mortgage adviser to see if you can now invest.
How much will house prices increase next year?
The Reserve Bank now thinks house prices will rise 7.1% in 2025. And 5.9% in 2026.
That’s faster than the 4.8% and 5.6% they projected 3 months ago.
They also see a lot of that house price growth happening in the first 6 months of next year.
Forget the exact numbers. Because they will almost certainly be wrong.
It’s the direction that’s important.
The Reserve Bank sees house prices increasing faster than they did 90 days ago. So, if you care about rising house prices. This is a good sign for you.
Andrew Nicol
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
Andrew Nicol, Managing Director at Opes Partners, is a seasoned financial adviser and property investment expert with 20+ years of experience. With 40 investment properties, he hosts the Property Academy Podcast, co-authored 'Wealth Plan' with Ed Mcknight, and has helped 1,894 Kiwis achieve financial security through property investment.
