Page 3 - Winter Edition

Save Money on

your Mortgage

On face value, now looks like a great time to be a borrower. In the New Zealand mortgage market, we've
recently seen Kiwibank come out with NZ's lowest-ever 5 year rate, ASB aggressively slice large chunks of
their 3, 4 & 5 year rates, and TSB has come out with an offer to match any rate from the Australian banks.
Traditional pricing heavyweight ANZ has come out with a special targeted rate around the Healthy Homes
Legislation, which includes an exceptionally low 1 year option of 3.75%

Storm clouds loom
There is, however, a storm cloud on the horizon. the Reserve Bank is talking about increasing the amount of

capital banks need to hold in their coffers. There's some debate going on between economists wondering, if
this happens, whether the flow-on effect could be increased interest rates. It could get a bit scary. UBS
economists suggest we could see an increase in mortgage rates of between 86 and 122 basis points or 0.86
to 1.22%.
On the flip-side, some commentators, including BNZ chief economist Tony Alexander, believe if that
happens, the Reserve Bank would just cut the official cash rate (OCR), to compensate. The OCR is a tool
used to influence the price of borrowing money in NZ.
But I'm worried that since the most recent cash rate review, the Reserve Bank has seen "a weaker global
economic outlook and reduced momentum in domestic spending". That means OCR cuts are likely. Some
commentators believe we could see this as low as 0.75% by next year.

Not much gas in the tank
All this isn't leaving much gas in the tank for the Reserve Bank to pull the OCR back further if banks were to
pass on to you the costs of holding more capital. The Reserve Bank's been upfront: they're looking at this
capital increase to prevent a one in 200 year banking crisis. It's an admirable goal, but the question does

need to be asked whether the potential detrimental effects of this could outweigh the benefits.
All this is happening at a time when property investors are already taking cash-flow hits in the form of other
changes - the ring-fencing of tax losses & upcoming Healthy Home legislation forcing landlords to upgrade
heating & insulation to minimum standards. Banks are also making it harder for people to get interest-only
loans, which is a flow-on effect from issues they're seeing in Australia.

Time to act now
Here in NZ, we tend to just "set & forget" our interest rates, but here's a heads up.. right now, I strongly
suggest you put some time & effort into your mortgage, in view of the fact that it's often a family's biggest
expense. Review what you're paying in interest rates. Check when your fixed rates expire, if you have a
portion fixed. I've found there can even be an upside to breaking your rate early, in some cases.

Late last year, I was able to get clients out of a fixed rate with no break fee. We then re-fixed their home loan
at a substantially lower rate. I've seen this happen many times since November, when we first starting
seeing the banks aggressively competing.
So don't sit and wait.. Check now to see if there's any benefit in reviewing your mortgages in the light of
these sharp new rates.

Article by Kris Pederson - JUNO MAGAZINE - Winter 2019