Ryan Smuts: What investors need to know about the recent OCR cut

The OCR has been cut recently by 0.5% – a lot higher than many economists were initially expecting.

What might this mean for the borrower?

Over the last fortnight, we at the Kris Pedersen Mortgages team have seen some key effects come into play: across the market floating rates have dropped
and in many cases, as much as 0.5%. Lenders like ASB for example took their floating rate down from 5.70% to 5.20% with others following suit. This
means for those clients on floating rates their interest rates have just been reduced, and often when adding the floating discount that many banks
offer, many Kiwis are now seeing their floating home loans as low as in the 4% point range.

Whether we will continue to see rates drop even further will be interesting, as some economists are still predicting one more OCR cut later this year.

So, generally speaking, if you are in the market for a home loan, what should you be looking at?

If you don’t have a discount from your bank on your floating rate (standard floating, or otherwise – offset/revolving credit, etc.) then it’s worth asking
for one. Most lenders on standard residential mortgages are offering 0.25-0.65% off their floating rates just for asking the question, and we’ve even
seen some discounts significantly higher than that.

At the moment it is a great time to review your current fixed rates to determine if you have the best of what the market has to offer. It makes sense to
run an analysis on whether it is worthwhile to break and re-fix your mortgages. With how low rates are, in many cases we’re seeing clients achieving
substantial savings simply by paying the break cost to get onto a lower rate. The KPM team offers this service for free. Get in touch and we will be happy to help.

When you borrow to buy a house (home or investment), it makes sense to minimise any financing costs as much as possible so that you end up with more surplus
funds to allocate how you like. It is a great time to be adding to your investment portfolio seeing that debt is at the cheap side making holding more
affordable. Additionally, we are also seeing rent rising across several key regions. If you are not buying any properties in the short-term, it pays
to re-evalaute your financing strategy to consider a more aggressive repayment plan while rates are still low. In the break and re-fix example above,
you may reduce your interest rate and keep the same repayment amount, so more of your payments are going towards reducing the principal portion of
your loan.

Keep an eye on the interest rate market, and particularly on your own interest rates to ensure you get ahead, and stay ahead.