RBNZ intends to lift interest rates over the coming years, but held fire this time given the level of uncertainty about this new outbreak.read more
How low can we go?
1% OCR might be on the cards.
Are you ready for a 1% official cash rate?Just when we thought interest rates couldn’t go any lower, the Reserve Bank has been dropping some serious hints that the current 1.5% OCR could drop again.
What economists are saying
Economists at the major banks are forecasting a cut in either August or November, or possibly even both, which would potentially leave us with an OCR of 1%. Even a few years ago this would have seemed unlikely, yet here we are.
This is astounding low – but will it mean even sub-3% interest rates on your mortgage? I’d love to say yes, but the answer is ‘Probably not’. While the low OCR puts downward pressure on home loan rates, banks have other considerations when they set their rates, so only a relatively small amount of the OCR cut gets passed onto consumers. Plus, they’ve got to think ahead and keep their powder dry in case proposed capital requirements are implemented.
One economist is predicting the OCR cut will cause “an upturn the housing market”, which will also be helped by the prospective deposit requirement easing. The logic is sound, but conditions have been extremely borrower-friendly for at least the past year and the market has just been cruising along. I feel confident that there’s no imminent property crash coming and that interest rates will stay low; beyond that we’ll need to wait and see.
5 ways to keep your renovation on budget.
The bigger the renovation, the tougher it is to stick to a budget. We do loads of renovation loans at SuperCity; anyone doing a major refurb usually asks me for a bit more money before the job is finished.
Tips to help you stay on budget when you’re renovating
Asking for extra money is not a problem from my point of view, but it can be disappointing for homeowners who are already feeling stressed out. Here are a few tips to help you stay on budget when you’re renovating.
- Start with a realistic budgetSometimes people ask me how much they can borrow, then try to make the renovation they want fit the amount of money available. That’s not how it works! Get conservative and up-to-date estimates from your tradies, then base the budget on those estimates, rather than on what you hope it will cost.
- Plan everything carefullyThe more organised you are, the fewer problems and overruns will occur. Choose all your fittings and finishes before you start the project, spend time discussing potential problems with your architect and tradies.
- Don’t change your mindOne important reason to plan carefully is that making changes once work has begun is a sure-fire way for your costs to escalate wildly. The phrase “While we’re at it, we may as well…” is to blame for a lot of money spent. Think very carefully about the real cost of any changes.
- Have a contingency budgetDon’t undertake a renovation with a starting price that’s already as much as you can afford to spend. Build in a minimum contingency fund of 10%, but I would honestly recommend being prepared for your build to go 25% over budget if it’s a big project. If it’s not needed, you’ve got extra to spend on new furniture. And if you do need the money, you’ll be very happy to have it.
- Shop aroundYou can get a great finish at a reasonable price, if you put in the effort to shop around. Outlet stores, TradeMe, second-hand and reclaimed products can all keep the cost of your renovation more manageable.
It would be a shame to undertake a major renovation and run out of money halfway through – or be forced to sell when you can’t afford the repayments. Thinking ahead will help prevent your renovation from blowing out of all proportion.
Banks get fiercely competitive.
Take one flat housing market. Add sub-4% interest rates. Stir in tight lending criteria. What do you get? Banks that are competing hard for quality borrowers. If you have a healthy amount of equity and a good income, expect to see excellent interest rate offers.
What the banks are saying
And there’s more you can expect to be offered cash, too. It scales depending on how much you borrow, but a $500,000 loan switched to a new bank might attract $3,000 cash and a $1 million loan might get closer to $6,000 or more. (Switch away too soon and you’ll have to pay some of that back.)
This competitive environment for lenders has also generated an innovative approach to changeover fees. One of the big barriers to switching banks is legal fees, which are typically around $800 and can be as high as $1,500. Kiwibank has introduced a free switching service where the bank pays your legal fees to move your loan for properties owned in personal names.
This is proving very appealing to our clients and many have switched banks as a result. It’s a game changer. We are one of just five mortgage advisory in NZ who can deal with Kiwibank. I think we can expect other banks to be weighing up whether they can follow suit – is this the beginning of a trend towards free bank changeovers?
Right now at SuperCity we’ve been doing a lot of reviews for our customers. I analyse your loan amounts, rates, repayments, structure and lender. Could you break your fixed term and save yourself a lot of money? Is another lender going to give you an outstanding deal? Can we restructure or split your lending to help you reduce your debt more quickly? It’s a quick and easy service, with no obligation to make any changes, so if you’d like to know more just drop me a note or give me a call. I’m here to help.
Up-to-date market newsSee our archives to catch up on previous issues.
The announcement we did not expect: the removal of the ability of all new investor purchasers to deduct interest costs moving forward.read more
Although November will still likely show a sharp price increase, for December onward monthly price gains below the 3.5% of October and 2.6% of September are likely.read more