The Reserve Bank has increased the Official Cash Rate by 25 basis points to 3 per cent this morning. This is now the second rise in the OCR in two months – from 2.75 to 3 per cent – with analysts warning home owners to brace for further rises.
This morning we talked to Bruce Patten, a Register Financial Adviser for LoanMarket New Zealand, about how the changes may affect those looking to purchase. Mr Patten tells us that “most increases have already been factored in to the current fixed rates, so we don’t expect too much of an increase in the rates from this increase apart from the floating rates, so this shouldn’t affect those looking to purchase too much… The average mortgage should only rise by around $20 per week based on the new figures released today”. The rise eventually would bring floating mortgage rates from multi-decade record lows up to around 7.5 to 7.75 per cent – where they have been sitting at just under 6%
New Zealand’s economic expansion, with GDP estimated to have grown by 3.5 percent in the year to March are said to have led to the increase in the OCR. Reserve Bank governor Graeme Wheeler commented to the media this morning that “The speed and extent to which the OCR will be raised will depend on economic data and our continuing assessment of emerging inflationary pressures, including the extent to which the high exchange rate leads to lower inflationary pressure,” he said. “We can expect two more increases in the OCR between now and July and then most likely a pause before the election.” When asked about the economic forecast for home owners, Mr Patten comments that his recommendations for would-be home owners on a $500,000 mortgage would be (depending on their financial circumstances) to fix a majority of their lending for a 3 year period – which many people are doing – “to help get them through the next rate cycle which we expect to be in place for at least that long.”
Some information sourced from: NZ Herald