In August we had the seventh consecutive increase in the OCR since they began lifting in October 2021. The most recent four increases have been the most aggressive at 0.50 per cent per increase, which has been a total of 2 per cent since February this year.

Currently, as at August 17, our OCR sits at 3 per cent, with the expectation we will peak around the 4 per cent mark. There are two more reviews (October and November) before the end of the year, which is when this is expected to happen, likely to be at a rate of 0.50 per cent per review.

There is, however, a suggestion the RBNZ will need to loosen monetary policy earlier than suggested (second half of 2024). Instead, economists are hinting with record low consumer confidence levels it is possible we will see some OCR cuts late 2023.

Interest Rates

What does this mean for interest rates?

Well, recently we have seen residential mortgage rates come back slightly, particularly in one-year terms (where most banks were previously above 5 per cent, some are now slightly below), and longer-term interest rates such as the three to five-year terms. These were all hovering around the 6-6.5 per cent mark (depending on term/bank), but have now in many cases come back into the high fives for most lenders’ special rates.

This could be an indication that long-term rates have peaked, whereas with the increasing OCR forecasts for the remainder of this year it is possible we will see floating rates continue to rise, and short-term fixed rates might also increase further.

As always, we recommend borrowers review their overall situation to keep on top of their financial position during uncertain times where we have rising interest rates and rising inflation. Cash flow pressures are typically the cause of people having to make difficult financial decisions.

Ahead Of The Curve

As a result if you stay ahead of the curve by consistently reviewing your situation you may be able to avoid potential issues in the future such as dramatic interest rate increases or changes to your loan repayment type from interest-only to principal and interest.

Too frequently we see situations with clients where they are a bit too late when it comes to a review, which can make things more difficult than necessary. The sooner you review your situation and determine an appropriate interest rate strategy, the more equipped you will be.

Banks are also very competitive at the moment, offering large cash contributions for your business, which falls into their overall pricing metric. The combination of lower interest rates and a cash contribution from a new bank might put you in a better position moving forward.