Your October New Zealand interest rates update (And what actions you should take)

Your October New Zealand interest rates update (And what actions you should take)


– Hey, it’s Connie from
Prosperity Finance. I hope you’re well. In this video I’m going
to give you updates for the current interest
rate environments, and just share some, my opinion about the interest rate trend and
also give you some tips, what you need to do in
the current situation. So, let’s start. Firstly, what’s current
interest rate environments? Well, if we’re talking about Chinese bank you probably heard recently
that all three Chinese bank they are offering really,
really attractive rates. So, for example, Bank of
China is offering 3.15% rates for both one year and two years. Right? So, they are much cheaper
than the mainstream banks, but when you consider a
home loan it’s not just about the rates. So there’s other more
important stuff including repayment structure, loan
structure, product, et cetera, but if we’re just talking about rates they are 0.3 or 0.4% cheaper
than the mainstream banks. So when we talk about Australian banks, so ANZ, ASB, BNZ, Westpac, so their lowest rates at
the moment, it’s two year, so around 3.49% and the
one year rates is at 3.55%. And even five year term is also within 4% currently at 3.99%. So it’s kind of a historical low. Most people still go with a one year rate. It’s simply because people, most people, expect the rates will keep going down in the next few months.
So it’s easier to adjust when you lock in a shorter term. But why not six months? Six months is still more
expensive than the one year rates, so if you workout the weighted average, probably still better off
to go with the one year. However, if you have an
investment property loan, just be in mind, some banks
actually charge a higher rate. For example, BNZ, so they
offering about, between 0.25% to 0.3% higher for
investment property loan than owner occupied loan. So
just be in mind it’s actually different pricing. That’s purely because the bank
has to hold higher capital for investment property loan. It’s actually across all the banks but some banks choose to pass
on that additional cost to borrowers. Some keep the same
so that they stay attractive. Okay, so we notice BNZ does that and SBS Bank does that as well. We notice that Westpac
has a slightly increase for investment property. Not
as much as BNZ, like 0.3 %, but it could be just a timing thing. Other banks, ASB and ANZ might
follow as well in the future, so just to let you know, not all the loan can get
that kind of a low rate. Okay, what is the trend? So, a lot of economist
predict the OCR is going to be dropped to 0.25% by May next year. So, currently it’s sitting in a 1%, so the drop is around 0.75%. Alright, so what does that mean to us? Does that mean other interest
rates we’re being charged by the bank also drop by the same amount? Well, it’s a million dollar question. There’s two reasons that
the bank may not pass that kind of a big drop. Number one is because bank always have to keep a certain margin and over the last decade bank has to keep minimum 2% margin, so even the OCR’s only 0.25%, they still have to charge over 2% rates, just to keep that margin. Okay, cause they are
profitable organization right? At the end of the day. So that’s one reason,
and the second reason is, you probably heard a lot
of news about talking about capital adequacy. Now
just give you an idea, at the moment, on average,
Aussie bank has to hold about 8% of loan as capital. So
that’s to absorb any losses in the economy downturn. Right? But the local bank, for example, Kiwibank has to hold up to 15%. So it’s almost doubled, right? So, it’s not really fair in a way because the more capital you hold, yes it’s safer, however it costs more to the bank because they don’t get return for
the capital money, right? So the banks, all the Aussie bankers still kind of are negotiating with reserve bank and see
what is the right level is. If there’s a significant
increase in the capital adequacy requirements, then even the
OCR do job quite significantly. You know, it doesn’t really
mean, you know, that the actual interest rate with job. So it depends how much job,
how much increase, alright? So, just be in mind, so
what’s going to happen for the next few months. So that’s about trend,
so we still recommend, locking one year. Cause still, the big picture, the rates looks like it’s
going to keep dropping it’s just a matter of
by how much. Alright? Now there’s a few reasons you need to be in mind that not the cheapest is always the best. So, number one, is people
need to consider certainty. If you are expecting your
household income decrease over the next year or two, for example, you may have two income
earners at the moment but maybe you partner’s going
to be on maternity leave soon, so there’s going to be just
one income for a little while, and you have a newborn so
that actually costs you more. So, make sure you give
yourself some breathing space. You know, don’t stretch yourself too much. Some other scenario like,
you’re probably going to, you know, start up a business from salary so you might have some
uncertainty over your cash flow or maybe you expect
your health is not well so it all affect your income,
affect your cash flow. So if you do have that
kind of expectation, please at least put some
loan on to a longer term. So that you can have a piece of mind. Now, the number two tips is that if your loan is coming
off fixed term soon, yes, you probably automatically
paying less rates, but it’s best to keep the same payment so that more of your
money is going towards the principle reduction.
That can save you a lot of interest costs in the long run. Okay, so, that’s the number two. Number three, you may consider borrow more given, you know, interest rates so low. Your rent income potential would cover your mortgage payments. So, some people thinking
about borrowing more. Now if your loan borrowing capacity is not big enough to purchase another property don’t worry too much. What
we see is that in Australia, they have dropped the
assessment interest rate. That means people with the same level income can borrow more. Okay, so New Zealand Bank,
they will follow that. It’s just a matter of time
cause every time they change something there’s a lot
of flow on the factor, so they make sure everything’s ready, so it’s just a matter of timing. So if you can’t borrow
enough to buy a property it could happen in the
next few months. Okay. So at the moment New
Zealand bank still charge kind of every 7% assessment rates. But in reality you are
paying as low as 3.15. So it’s a big difference. So
they are about to adjust that. The next tips is about
doing break fee analysis. It’s very useful for people
who already have existing loan, is still on fixed term, and you regret that you fixed for so long cause you will miss the lower rates. So if you are thinking
about break your loan talk to us because we’ll
do free break fee analysis. We’ll help you to consider affecting all the cost and all the reward. Even including the
possibility of refinancing. So we can help you to see
through, help you make a decision. Is it better to stay on
the current loan term or break it or even refinance it. So we can do all that for you for free. Okay. Finally, is that I will
say this is the best time to review your loan. Okay? So, you may not consider buying more but loan structure, current
loan structure is critical and that will have impact on your further borrowing capacity. So even you not considering
borrow more at the moment it will be really good to consolidate, you know, review your loan and make sure when
you’re ready to buy more you know, your structure
actually work for you. Okay? Cause sometimes
you know, for example, you have everything in with one bank, you can’t unlock the equity,
you can’t borrow more or you’re probably kind of prone to the higher interest rates when it comes off fixed loan et cetera. There’s a lot of things you might consider when you do the loan review
so the best way to do it is contact us, we’ll do
everything for free for you. Even you don’t do anything in the end. I hope you find this video useful. If you know your family
friends would benefit from this please feel free to share
this video with them. Thank you so much for watching.
I will see you next time. Bye for now.