Finsol News
1/3/2022

March Market Update with Paul

We're living in turbulent times, and the recent event of Russia invading Ukraine has created further uncertainty and fear in the market.

The OCR (Official Cash Rate) has increased by 0.25% basis points. My prediction was it would rise by 0.5% basis points due to the current hyperinflation in New Zealand.

The hyperinflation problem is a global issue due to COVID, which stimulated super low-interest rates and excess money supply. As a result, most countries are suffering the aftermath. Goods and services are becoming unaffordable, and interest rates are rising to balance the equation. Over the next one to three years, interest rates are predicted to increase to 5 - 6%.

If inflation stabilises and gradually drops to 3%, you'll see rates hold/drop progressively to balance the equation.

The banks have already factored the recent OCR increase into their short-term fixed rates. We shouldn't see too many short-term fixed-rate movements; however, banks will increase rates further if inflation rises.

What does this mean for first home buyers and investors?

First home buyers will start getting some good bargains, especially in the bigger cities - property prices are predicted to drop by 8 to 10% in the next couple of years. Auctions have reduced, and listing amounts have dropped to attract buyers.

Though there will be deals to be had, first home buyers will face stricter lending guidelines due to the recent tightening of all major banks. However, we've seen a few lenders open their doors for below 20% deposits to purchase existing homes.

Property investors will either take advantage of the market downturn or hold tight and ride the wave depending on their overall cash flow position. Some investors may sell due to negative cash flow (from the effects of increased mortgage repayments from rising interest rates and not using interest deductibility).

As always, investors or first home buyers should contact their financial advisers for support and advice to reach their financial goals.

Written by Paul Ejamme, Financial Adviser and Finsol Director.

The opinions conveyed in this article are for general educational purposes only to provide information about the financial services industry. 

This information is not intended to provide specific advice or recommendations for any particular insurance, home loan, or investment product. You should not use this article to make any financial decisions, as we cannot assess your situation without thorough consultation. We highly recommend seeking professional advice from one of our qualified financial advisers. Get in touch on 0800 346 765 or email finsol@finsol.co.nz

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