We've seen a rapid rise in the cost of living in the last six months, both here in New Zealand and around the globe. So what does this mean if you want to borrow now or in the future? And how has this impacted the New Zealand property market?
The current OCR (official cash rate) is 3%, and there are strong predictions that it will rise to 3.5% to 4% by mid to late next year to stabilise inflation. We're hoping for a halt in the OCR during that period and perhaps a gradual drop again. This all depends on how inflation is managed in the next 12 to 18 months.
When the OCR rises, banks floating and assessment/test rates rise accordingly, which can impact potential new borrowing due to the rise in assessment rates. For example, if existing borrowers holding pre-approvals to purchase a home don't act fast and their approval expires, their borrowing capacity will drop even further due to assessment/test rates increasing.
Borrowers who hold an existing construction loan and are building their dream home, first home or investment property also get impacted by the rise in the OCR as it affects the floating rates, resulting in higher interest loan repayments.
The positive of the rise in OCR is the stabilisation in property prices. As a result, we're seeing a few clients obtain bargains and many first home buyers finally stepping onto the property ladder. So if you are a first home buyer, get your ducks in a row and work with an experienced mortgage adviser to help you purchase your first home - now is your time to take action.
There has been an increase in the First Home Loan and Home Start Grant purchase caps, which is a bonus for those in the market for their first property.
Investors and property developers overstretched with lending will have to ride out the storm over the following 12 to 18 months (at a minimum). Our tip for property investors: engage your mortgage adviser and review your existing loan structures to see what can be adjusted to enhance cash flow and get through this period.
This article is for informational purposes only and should not be considered as financial advice. It is always recommended to consult with a qualified financial professional before making any financial decisions based on your individual circumstances.
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