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OCR Outlook And Your Mortgage Now · That Home Loan Hub

• 0:20
  SPEAKER_01: And we're gonna talk about OCR.
• 0:23
  SPEAKER_01: That was supposed to be like a snapshot of what to expect, guys, but um OCR.
• 0:29
  SPEAKER_01: There's nothing else to add.
• 0:31
  SPEAKER_01: James, hello.
• 0:34
  SPEAKER_01: You were gonna say hello, huh?
• 0:37
  SPEAKER_00: But I'd said that on the previous one.
• 0:39
  SPEAKER_01: So that's okay.
• 0:40
  SPEAKER_01: You obviously were a little bit busy for those that don't know.
• 0:43
  SPEAKER_01: Go back and listen to an episode we just did with James.
• 0:46
  SPEAKER_01: James was a little bit out of action for the last few months.
• 0:50
  SPEAKER_01: I think you did come in at some point.
• 0:51
  SPEAKER_01: I did.
• 0:52
  SPEAKER_00: Like a a week or two weeks ago it would have been popped in.
• 0:55
  SPEAKER_01: But that's okay.
• 0:56
  SPEAKER_01: Um OCR.
• 0:57
  SPEAKER_01: What do you reckon?
• 0:58
  SPEAKER_00: Okay, so caught up on a few of my cool little property and investing podcasts over the last few days.
• 1:04
  SPEAKER_00: And uh, you know, as folks might have heard, the OCR has dropped another quarter of a percent.
• 1:10
  SPEAKER_00: So that generally means it's good for you know more people looking to get a mortgage.
• 1:17
  SPEAKER_00: But what we have noticed is this time around the banks haven't dropped their interest rates quite as much.
• 1:22
  SPEAKER_00: So which why is that?
• 1:25
  SPEAKER_01: Why the banks are not dropping?
• 1:26
  SPEAKER_01: I'm getting messages every day from clients asking, should they fix now or should they wait a little bit longer?
• 1:31
  SPEAKER_00: I think the banks have all seen this coming for quite a long time, and so what they tend to do is they get out in front of, you know, they've got economists, probably teams of economists working away on this, and so they know that the OCR has been dropped and it's going to be dropped, and they're lowering their interest rates well in advance of those OCR drops.
• 1:52
  SPEAKER_00: So we've we've probably seen the lowest, unless something really bizarrely goes wrong, like globally.
• 1:58
  SPEAKER_00: New Zealand is turning around economically, so the lowest interest rates of OCR, that's probably the last OCR.
• 2:07
  SPEAKER_00: It might stay nice and low for a while, at about two and a half percent, we hope.
• 2:11
  SPEAKER_00: So what we are beginning to think is it's a great time to jump in there, which it has been for a while.
• 2:18
  SPEAKER_00: Like I've just done a long-term, a long-term rate for five years, where one of my clients is locked in a five-year rate at five percent.
• 2:26
  SPEAKER_01: Yeah, 4.99.
• 2:28
  SPEAKER_00: Yeah, yeah, absolutely.
• 2:29
  SPEAKER_00: So that's that is really good.
• 2:31
  SPEAKER_00: If you think historically, you know, what you've seen over the last 20 or 30 years for a five-year rate, other than that real COVID, where you could do a three percent.
• 2:41
  SPEAKER_00: Yeah, try not to compare your rates with then.
• 2:44
  SPEAKER_00: That was a real weird anomaly.
• 2:47
  SPEAKER_00: It's just you're not gonna see that again.
• 2:48
  SPEAKER_01: And I think that's the trouble, right?
• 2:50
  SPEAKER_01: A lot of younger people, I know older people actually find with 4.99 for five years, but I think a lot of younger people that have had a mortgage since COVID, they're under the assumption that we might see those 2.99 come back and they're just hanging out for that.
• 3:03
  SPEAKER_00: Yeah.
• 3:04
  SPEAKER_01: But I don't think it's gonna happen.
• 3:05
  SPEAKER_00: No, if you've been for a a few market cycles, you know, say from the late 1990s, you know, dot com, global financial crisis, and and then covet, I suppose was the global financial crisis and covet were the two big ones in our in recent memory.
• 3:23
  SPEAKER_00: So, you know, you they don't come around along that often.
• 3:26
  SPEAKER_00: Like normal economical economic cycles, the interest rate, it's just like today.
• 3:32
  SPEAKER_00: Today's the low point.
• 3:34
  SPEAKER_01: So, what we normally recommend to people is oh do not heavily rely on OCR reviews, although they have been linked closely to the drop of the rates.
• 3:47
  SPEAKER_01: The banks actually have their own wholesale rates that they rely on.
• 3:53
  SPEAKER_01: And if you are thinking that you know you would like to budget better, etc., then booking in a five-year rate is probably a good plan.
• 4:03
  SPEAKER_01: If you're not planning to sell your house or do anything that will require breaking that rate, three to five years is actually a good term.
• 4:12
  SPEAKER_01: Yeah.
• 4:12
  SPEAKER_01: At 4.99.
• 4:14
  SPEAKER_01: Yeah, but we also see a shorter, shorter rates sitting at quite a good.
• 4:19
  SPEAKER_00: Yeah, they are about four and a half or something.
• 4:22
  SPEAKER_01: Yeah, four point four five.
• 4:24
  SPEAKER_00: I actually had a client, I think, had four percent for two years.
• 4:29
  SPEAKER_00: Wow.
• 4:29
  SPEAKER_01: One of the well, you you're thinking first-time buyers.
• 4:32
  SPEAKER_01: So for the first-time buyers, we actually still have that awesome deal, which is 3.99 for one year or two years.
• 4:39
  SPEAKER_01: Yeah, and if I was a first-time buyer, I'll be jumping at that.
• 4:41
  SPEAKER_00: That was I just couldn't believe that.
• 4:43
  SPEAKER_00: I I I I understood the one year, but seeing you could do it for two years, uh that was just Yeah.
• 4:50
  SPEAKER_00: Um, I wish I could do that.
• 4:51
  SPEAKER_01: I know, same.
• 4:52
  SPEAKER_01: But unfortunately, this offer is only for the first-time buyers.
• 4:56
  SPEAKER_01: So, in terms of OCR looking into the next year, do you reckon there will be further drops?
• 5:02
  SPEAKER_00: No, I don't think there will be any further OCR drops, and you know, I'm not an economist, although, you know, that would be pretty cool, which is a pretty sad thing to say.
• 5:12
  SPEAKER_00: But yeah, things are picking up, and so basically the Reserve Bank can't, I don't think you'll see them dropping the OCR any further because they've got to monitor inflation.
• 5:23
  SPEAKER_00: If they drop it too much, inflation will pick up again and then they've got it, and then they'll have to start lifting it.
• 5:29
  SPEAKER_00: But generally, from what I can understand from the podcasts that I also listen to from various economists, is that there that we can we will probably see the OCR just hold for uh sort of media the medium term.
• 5:45
  SPEAKER_00: Possibly the next move would be up.
• 5:48
  SPEAKER_00: It's probably more likely uh later next year, mid to late next year.
• 5:53
  SPEAKER_01: Yeah.
• 5:53
  SPEAKER_01: So if I was you and if my loan is coming up for renewal, I'll be looking at what can I do to future proof myself from the increases.
• 6:03
  SPEAKER_00: And now is this the coolest of time?
• 6:05
  SPEAKER_00: If you and because property prices in Auckland and Wellington are still, they haven't really moved at all.
• 6:11
  SPEAKER_00: And so if you're in those areas or it's just a great time to be a first home buyer.
• 6:15
  SPEAKER_00: The property prices are low compared to two or three years ago.
• 6:19
  SPEAKER_00: Yeah.
• 6:19
  SPEAKER_00: You know, it's probably not far off what you're paying in rent.
• 6:22
  SPEAKER_00: Interest rates are are really historically phenomenally low, and the only thing you've got to really account for is the rates and you know, your property insurance, which will which will just pop up the costs a wee bit um for your for your house expenses, but that's really the only difference, and it's just a bit of an investment of your time.
• 6:44
  SPEAKER_00: How many inquiries do we get of people that are really in a great position to get a first home, but don't f don't do anything?
• 6:52
  SPEAKER_00: You know, it's and we can only do so much, so it's really about we can help you as much as we can, but you've got to do a bit of work yourself.
• 7:00
  SPEAKER_00: I don't I don't know how that comes across.
• 7:02
  SPEAKER_01: But the ball is in your court as well.
• 7:04
  SPEAKER_01: And I think the trouble here is we're fighting against media, right?
• 7:08
  SPEAKER_01: We're fighting against media, we're fighting against Uncle Bob and neighbours, where they say to the young ones, Oh, don't buy a house, it's a trap, and you know, you're better off paying rent.
• 7:18
  SPEAKER_01: Because when you pay rent, you don't need to worry about rates and insurances.
• 7:21
  SPEAKER_01: Yeah.
• 7:22
  SPEAKER_01: But the thing is with that, and I was doing some math with my clients, is they're paying more in rent than they're paying in mortgage.
• 7:29
  SPEAKER_01: And the way I see it is at least if you're paying towards your own mortgage, you can always sell the house and recover that cash versus that cash, if you're paying rent, disappears.
• 7:40
  SPEAKER_01: You're paying into the black hole and you can't get that cash back.
• 7:45
  SPEAKER_01: You don't have an asset that appreciates with time.
• 7:47
  SPEAKER_01: And by appreciates, I mean you're appreciating the house, but the house appreciates.
• 7:52
  SPEAKER_01: Yeah, absolutely.
• 7:53
  SPEAKER_00: It's a it's a compulsory savings scheme.
• 7:55
  SPEAKER_00: You know, you got your Kiwi saver, but by paying your mortgage, you're really putting aside that money into a an investment.
• 8:02
  SPEAKER_00: It is it's kind of an investment because in the future, when you retire or whatever, you're not gonna have to pay rent.
• 8:10
  SPEAKER_00: So if you'd sort of, I think it's important to build that, build that equity out, pay that mortgage off, and then you've got a a rent-free place to live.
• 8:21
  SPEAKER_01: But also, if you think about it, like by the time you retire, you know, where else are you going to save 500,000 to a million right worth of asset?
• 8:30
  SPEAKER_01: So even if you wanted to sell the house when you retire and go on a Caribbean cruise or on a cruise liner for the rest of your life, if that means you know 20 years of cruising around, yeah, you will have enough money to do that if you sell a house.
• 8:42
  SPEAKER_00: Yep.
• 8:43
  SPEAKER_00: If it's mortgage-free.
• 8:44
  SPEAKER_00: It's phenomenal what that the asset, what value of those are like because a lot of people I know they that's what they choose to do.
• 8:51
  SPEAKER_01: They want to go on a cruise.
• 8:53
  SPEAKER_01: And this is how they want to die.
• 8:54
  SPEAKER_01: You know, they just go, Oh well, I'm gonna go around.
• 8:57
  SPEAKER_01: The cruises have all the food included.
• 8:59
  SPEAKER_01: I can just meet all sorts of new people, all new places to see.
• 9:04
  SPEAKER_00: That day and night.
• 9:05
  SPEAKER_01: Yeah, and there's medical help on board, and hopefully.
• 9:09
  SPEAKER_01: Hopefully, but they don't care, they're like, Well, I'm 80, you know, that would be pretty cool.
• 9:14
  SPEAKER_00: I mean, and you can even choose ones that uh they don't allow kids on.
• 9:18
  SPEAKER_00: I know some people go for that.
• 9:19
  SPEAKER_00: Yes, so that can be important for some people.
• 9:22
  SPEAKER_01: So the way I see it is that the house in the future gives you freedom.
• 9:27
  SPEAKER_01: Yeah, and even if you have fantastic children and you want to go and move with your kids, you know, you could always sell that house and go move with your kids and build something maybe at the back of their session section.
• 9:38
  SPEAKER_01: Then that's what we see as well, right?
• 9:41
  SPEAKER_00: Multi-generational living is becoming a real theme.
• 9:44
  SPEAKER_00: So if you can uh if you're looking at a property in that regard, yeah, do think about those things.
• 9:50
  SPEAKER_01: So it's not what about right now, it's about what about in the future.
• 9:54
  SPEAKER_00: Yep.
• 9:55
  SPEAKER_01: Your future self will thank you for it.
• 9:58
  SPEAKER_00: I'll tell you one thing that was really helpful for me when I bought a property when I was quite young.
• 10:03
  SPEAKER_00: And while before we had kids, we we we paid, we we paid that mortgage off as quick as we could, or as much as we could.
• 10:12
  SPEAKER_00: And and but what that allowed us to do is when we did have kids, we were able to actually relax a little bit, draw down on the equity on that property.
• 10:21
  SPEAKER_00: Yeah, and it got us through a tight spot.
• 10:24
  SPEAKER_00: Whereas we didn't have I wouldn't have saved that money.
• 10:27
  SPEAKER_00: So that it gives you options.
• 10:29
  SPEAKER_01: And that's what we see, right?
• 10:30
  SPEAKER_01: A lot of people choose to have kids a little bit later because they want to be in a stronger financial position.
• 10:36
  SPEAKER_01: But I mean, for us, when we bought our first home and then we had our kids shortly after, I think it was it was born maybe a year or two years later, and after we bought a house, so that put a huge strain on us, and I had to come back to work really early, yeah, because I had to pay that mortgage.
• 10:52
  SPEAKER_01: So, yeah, whatever you did with Rebecca really was much cleverer than what I did.
• 10:58
  SPEAKER_01: So, yeah, no, James, thank you so much.
• 11:01
  SPEAKER_01: That was your quick OCR update and interest rates outlook for the next year.
• 11:06
  SPEAKER_01: And if you guys have any questions or topics you want us to cover, please let us know.
• 11:10
  SPEAKER_01: Thank you so much.