OMG! It's the OCR!
12 Aug 2021, Lynette McFadden
I’ve found that where property goes, speculation soon follows, and the current climate of speculation focuses on the likely effect of an imminent increase in interest rates. There’s also the daily trumpeting of spectacular sales figures, an extraordinary demand for new housing and the implications of property tax changes.
It’s a busy platform with opinions aplenty and one where the uninitiated and poorly informed can easily lose their way. Let’s start and stop with the interest rates. Not that long ago, economists were signaling a potential interest hike. The word ‘potential’ is a lovely thing for an optimist and given some of the sales prices I’m observing, a lot of people are treating this as unlikely.
But it is. It’s very likely, in fact. I’ve read that there’s a 90% chance the Reserve Bank will raise the O.C.R. For those of you unsure of exactly what that means, here’s an absolute layman’s explanation.
The O.C.R. was introduced in March 1999 and is reviewed seven times a year. The next scheduled review is August 18th. It influences the price of borrowing money in New Zealand and provides the Reserve Bank with a means of influencing the levels of economic activity and controlling inflation.
As a result, market interest rates are generally held around the Reserve Bank’s O.C.R. level. When increases occur, there can be a reluctance to spend on goods and services, and there’s a stronger incentive to save. It also follows that those with mortgages may experience higher interest rates.
So, if you’re currently looking to buy, really work hard on your servicing calculation to avoid stress and talk to a mortgage expert (which I’m not) about possibly fixing. Having been brought-up in the times of 20% plus interest rates, however, I feel that we are still very lucky.
In the meantime, everything you’re hearing about some fantastic sales results is true, tied closely to a reduced number of available properties and a strong drive from Kiwis in other parts of New Zealand, occasionally buying sight unseen. The reason being that Christchurch values are low compared to the buyers’ own cities.
Spring is close, bank announcements even closer, and all of this could change as it does over time, but hopefully this has added a little more knowledge to current property rhetoric.
Happy house hunting.