The OCR Cut: What it means for everyday Kiwis

The Reserve Bank of New Zealand (RBNZ) has recently lowered the Official Cash Rate (OCR) by 0.25%. This marks the beginning of a gradual easing of interest rates after a period of high rates aimed at controlling inflation. Let’s explore what this means for you and the housing market.

---

THE BIG PICTURE

The OCR cut is a significant shift in New Zealand’s economic landscape. It comes after a challenging period of high interest rates that put pressure on many households. The RBNZ made this decision in response to signs that inflation is coming under control and concerns about economic growth. This change is expected to have ripple effects across various aspects of the economy and personal finances.

KEY CHANGES TO EXPECT

1. Mortgage Rates

The most immediate and noticeable impact for many Kiwis will be on mortgage rates. Here’s what you might see

• Gradual decrease in interest rates on home loans

• Banks have already started lowering their long-term fixed rates, with some dropping below 6%

• Experts predict further reductions, with one suggesting five-year rates could potentially drop to around 4.99%

• Floating rates are likely to decrease more quickly than fixed rates

What this means for you: For those with a mortgage, you might see your repayments decrease, especially if you’re on a floating rate. With the reduction in long-term fixed rates we are likely to see people re-fixing their mortgages to take advantage of the repayments. If you’re looking to buy, you might find it easier to get approved for a loan.

3. Housing Market

The OCR reduction could be the pre-cursor to more buyers returning to the market:

• Buyers who have been waiting for interest rates to drop before making a move may start to return to the market

• Combined with the recent changes to the brightline test, if interest rates fall, we could see more investors looking at opportunities in the real estate market

What this means for you: If more buyers return to the market this would inevitably lead to increased activity and demand for houses. However, don’t expect a rapid return to a hot market – changes are likely to be gradual.

2. Household Budgets

The OCR cut could bring some relief to stretched household budgets:

• For a $600,000 mortgage on a 25-year term, a 1% rate reduction could save about $374 per month

• Property investors or those on interest-only terms could save even more, potentially around $500 per month

• Recent tax changes have already put an extra $25 to $30 in many people’s pockets, and lower interest rates will add to this

What this means for you: Depending on your situation, the OCR reduction could translate to some extra breathing room in your budget.

4. Overall Economy

The OCR cut aims to stimulate economic growth, but the effects will take time:

• The cut is expected to boost economic activity gradually

• Global economic factors will still play a role in influencing New Zealand’s recovery

THINGS TO KEEP IN MIND

• Changes won’t happen overnight – it will take time to see the full effects of the OCR cut

• The RBNZ expects to make further rate cuts, but this depends on inflation staying under control

• Global economic conditions will play a significant role in New Zealand’s recovery

• While this cut brings relief, it’s just one step in a broader economic picture

• We would always recommend seeking professional help from a financial advisor to understand how these changes might affect your personal situation.