Is the arrival of a left-leaning government the catalyst for a hike in interest rates? Brendon explores possibilities and shares his tips for fixing and floating.
Pre-election, the common wisdom from those in the know was that interest rate hikes would be slow at best and would take a while. So, the recommendation for most was to fix for a year (and take the cheapest rate in the market). What has changed since then now that we have a Labour-led government?
Well, our mortgage rates are influenced by different things. The floating rates and short term fixed rates, are heavily influenced by local factors like elections and inflation.
It seems the new government will spend more than the previous and the prediction is that this may mean more inflation pressure, which will likely lead to a lift in the OCR and short term interest rates. (Unless, of course, Winston is correct and there is an economic storm brewing … in which case, not so much.)
The longer rates (three- to five-year fixed rates) are more heavily influenced by overseas factors, particularly US interest rates. They are nudging up, so watch what this space.
Despite the banks being pretty tough on new home loan applications, there is some competition between them, particularly in the two-year rate. One bank is offering 4.3 per cent for two years, which others have been struggling to match (at time of writing—however, watch this space).
If you can afford for your mortgage payments to increase a bit without hardship, lots of our clients are willing to take the risk and take the best rate for now (the one-year rate). Others are more cautious, so are splitting their loans between several fixed rates (leaving a little floating) or just opting for a two- or three-year rate in order to have certainty for a little longer.
As you can see, it isn't straight forward. Different decisions should be made on your interest rate strategy depending on your situation.
If you are a regular reader you probably get sick of me saying this, but I repeat because it is true and important: spend more time thinking about your debt reduction strategy rather than small differences in interest rates. The former is FAR more significant for getting ahead than the latter.
Your Velocity adviser can't predict the future, but they can work with you to put a good strategy in place. So, don't hesitate to make contact when your fixed rates are due to rollover. And keep in mind, don't just ask us "What interest rate should I take?" The best question is always "How can I get rid of my mortgage faster?"
Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.