Property Investment
2 min read
Author: Andrew Nicol
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
Yesterday afternoon, the Reserve Bank cut the Official Cash Rate (OCR) another 0.5%.
The third big cut in a row.
So, what will happen to interest rates?
One bank anticipated the cut. TSB cut their 1-year rate the day before the OCR announcement. That’s now sitting at 5.35%.
ANZ then cut their 1-year rate to 5.29% yesterday.
It was 7.39% 12 months ago. So ANZ’s 1-year rate is down 2.1%!
ANZ has also took the 2-year rate down to 4.99%.
That’s sharp. Very sharp.
But, the OCR went down 0.5%. And the banks are cutting only 0.2 – 0.3% off most of their rates.
The reality is that banks had already priced in most of this cut. So, expect the banks to cut less than the Reserve Bank.
It’s not the banks are stingy. They’ve passed on the cuts before Adrian Orr, the Reserve Bank Governor, got his scissors out to start cutting.
Servicing test rates have also dropped off a cliff. This means you might be able to borrow more.
Remember, test rates are what the banks use to figure out whether you can afford a mortgage or not.
ASB dropped its test rate from 7.6% to 7.3%. Kiwibank went even lower – cutting to 7%.
For context, if you could borrow $500k for an investment property on Wednesday morning, you might now be able to borrow $545k.
The 0.5% OCR cut wasn’t a surprise. The Reserve Bank already told us they’d do it.
But Adrian Orr still found a way to surprise and delight the market.
The central bank now plans to cut the OCR faster than they previously thought.
3 months ago, they thought the OCR would be 3.5% at the end of 2025. Now, they think it’ll hit 3% by the end of the year.
If that happens, you’ll see the 1-year mortgage rate hit around 4.9%.
Just don’t get too excited about more big interest rate cuts.
So far, the OCR has gone from 5.5% to 3.75%.
A 1.75% drop since August last year.
That’s down 0.3% per month (on average).
Over the next nine months, the Reserve Bank expects only 0.75% of cuts. That’s an average of just under 0.1% per month.
The next cuts (April and May) will likely be 0.25% each.
We’re just over halfway through this easing cycle. So expect the cuts to slow down. We’ve already come a long way.
Inflation remains steady at 2.2%. It’s right in the Reserve Bank’s 1–3% target range.
But inflation will likely go up this year. That’s because:
Imported inflation (tradeable) won’t be negative forever.
The Reserve Bank expects inflation to tick up to 2.7% in late 2025. So expect to see a few scary headlines.
Adrian Orr isn’t too concerned. He called it “noise” in the numbers at yesterday's press conference.
So, I don’t expect that the OCR will increase in response.
These interest rate cuts are good. It means cheaper mortgages and probably more money in your back pocket.
But don’t hold your breath for even more big interest rate drops. Mortgage interest rates are already down over 2% since the peak.
They will likely go down a tad. But, not by another 1%. Don’t expect a low 4% mortgage rate.
On the other hand, if you’re looking to borrow, lower test rates could mean now’s a good time to talk to your mortgage adviser.
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.
This article is for your general information. It’s not financial advice. See here for details about our Financial Advice Provider Disclosure. So Opes isn’t telling you what to do with your own money.
We’ve made every effort to make sure the information is accurate. But we occasionally get the odd fact wrong. Make sure you do your own research or talk to a financial adviser before making any investment decisions.
You might like to use us or another financial adviser
