Property Investment
2 min read
Author: Andrew Nicol
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
The Reserve Bank didn’t cut the OCR this time – but your mortgage could still get cheaper anyway. Here’s why.
The Reserve Bank has been slashing rates – We’ve already had the equivalent of 11, 0.25% OCR cuts in less than a year.
But this time? The RBNZ sat back and said, “Let’s wait and see.”
They left the OCR at 3.25%. But, why?
Even if the Reserve Bank did cut the OCR … it wouldn’t move the needle much.
That’s because banks (and interest rate markets) price in the OCR cuts they expect to come. So mortgage rates have already dropped in advance.
I think of it like kids on Christmas Eve. The little ones are buzzing. You give them the teeniest, tiniest hint they might get to open a present early … they LOSE IT.
A year ago, markets were like that. One hint of a rate cut and boom – rates dropped.
But today? It’s like it’s Christmas Day. The kids have unwrapped 11 presents.
That 12th present? Meh … Not as exciting. They’ve already had a whole heap of other ones.
The world is very uncertain at the moment.
Trump just announced a few more tariffs. We don't know how whether those will happen (or not).
The NZ economy is showing signs of life … but the data is mixed.
Despite all of that … the Reserve Bank basically said “...As long as nothing massively changes, there’ll likely be another cut to come in 6 weeks.”
So expect another 0.25% cut in late August.
The OCR works on slow-release. It takes time for the cuts to make their way to your mortgage.
In fact it takes up to 2 years for an OCR cut to fully flow through to the economy.
That’s because even if banks cut interest rates in advance … you don’t get that cheaper rate the next day.
You need to wait until your mortgage comes up for re-fix.
For instance, let’s say you locked in your mortgage interest rate for 1-year. But, that was 8 months ago.
Well, you still have 4 months left before you get a new (potentially lower) interest rate.
And a huge number of mortgages are re-pricing in the next year:
So even if the OCR stays put for a bit … Kiwis will still get cheaper mortgages.
Ed (my podcast co-host) just re-fixed his mortgage.
He’s going from 6.94% → 4.89%. That’ll save $148 a week on his $376K mortgage.
So even if rates don’t fall much more, you might still win when your fixed term rolls over.
One thing to watch out for. Expect inflation to make a small comeback.
It’s currently sitting at 2.5%. Expect it to bump toward 2.8%, then ease back down to 2.0% by 2026.
The Reserve Bank is saying it’s not too worried about that. But watch out for the doom and gloom news headlines at the end of the year.
The headlines will sound scary … but it shouldn’t be worth worrying about.
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.
