The Reserve Bank has cut the Official Cash Rate (OCR) for the first time in two years; down 25 basis points to 1.5 per cent, the lowest it’s ever been. Retail banks have been quick to pass on the rate cut: Good news for home owners and first home buyers.
Governor Adrian Orr said the economy had been going through a soft patch with immigration slowing, business confidence, investment, and job growth weakening, while inflation remained below the RBNZ's target.
Mr. Orr said that a lower OCR now is most consistent with achieving the Reserve Bank’s objectives and provides a more balanced outlook for interest rates, given the employment and inflation outlook.
Within minutes of the Reserve Bank’s announcement, ANZ announced its floating rate will be 0.1 per cent lower effective 13 May 2019, and that fixed-term rates will be lowered too. Other banks have also begun dropping mortgage rates.
ANZ managing director of retail and business banking Antonia Watson said, "The current extreme low interest rate environment not only represents an opportunity for new home buyers to enter the market, but for existing home loan customers to pay off as much of their debt as possible."
BNZ chief economist Tony Alexander says that on its own, the Reserve's decision is unlikely to stimulate new market activity in Auckland, "but it is one of several factors that will help underpin current activity in the city".
"Over the past three months we have had three positive developments for the housing market: no capital gains tax, fixed interest rates dropping below four per cent and net migration rising again," he says.
A drop in the Official Cash Rate is something of a double-edged sword – while home buyers stand to benefit, those saving will be impacted by lower interest rates on savings accounts.
For first home buyers, lower mortgage rates could make buying a home more affordable, and while it’s a move in the right direction, it’s just as important that first home buyers don’t over commit themselves while interest rates are low.
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