In his blog, Velocity Finance Director, Graham Goodisson, reflects on the topsy turvy year that was 2021, and offer some tips on how we can factor the current uncertainty into our financial plans for 2022.
5 Minute Read
Do you remember, back in December 2020, when New Zealand was still mostly mask-free? I spent my summer driving around the North Island, with no one requiring my covid passport or giving me side-eye like I might be a Typhoid Mary. There would be no funny tan lines on my face from mask strings. Scanning in was a bit hit and miss, an ice cream cone at the beach could still be obtained without too much drama, or side-eye for that matter. Things felt, well, normalish.
And then, Delta what? Delta, the new Covid strain, turning our lives upside down again, and putting the brakes on a care-free summer. It also threw all our predictions for Summer 2021 out the window, not only for a carefree one, but also for low interest rates.
In our Velocity Spin this time last year, we had our annual tradition of each taking a punt on interest rates for December the following year. Rather ashamedly, we must confess we were waaaaay off… with most of us guessing between 1.8% and 2.2%.
We are hoping that we may be forgiven however, based on the unprecedented events of the year (Yep, we are looking at you, Delta..)
So, somewhat sheepishly, here were our punts from last year….
Willie: A smidge over 2%
Joshua: 2.15%, maybe? (Spot the uncertainty from the insurance guy!)
Lance was the winner, with his 2.20% guess being the closest– to the actual (current as of today) December 2021 rate of 3.49% (ANZ).. Only 1.29% percent off…
(You’re still a winner to us, Lance.)
The Reserve Bank is also a little sheepish right about now.
In May 2020, during the last national lockdown, the central bank predicted house prices would fall by 9 per cent by the end of 2020. Instead, house prices skyrocketed, with national median house prices increasing by 25.2 per cent (and as much as 32.7 per cent in some regions) year-on-year from July 2020 to July 2021.
So, they were waaaaaaay off on that one. And in terms of the cash rate, The Reserve Bank has very clearly said that rates will continue to rise, with one important caveat:
"The committee expected the OCR would need to be progressively increased and, conditional on the economy evolving as expected, it would likely need to be raised above its neutral rate."
The key point is around the economy continuing to perform as expected. Now that is something that we will have to wait and see.
Hedging bets on interest rates and the economy in this current environment is like pin the tail on the Donkey, and on a real Donkey.
So, we wait and see what 2022 brings. Will the one rate be higher, by December 2022? I think it will, but by how much, I don’t know.
None of us know that this Donkey is going to do. Will it stay and graze, trot (or gallop?) away, or simply kick us in the nether regions?
I can not say, but there are some things I do know, such as how to structure your loan against uncertain Donkeys and what to keep in the fore front of your mind when doing so.
When choosing what to do with your mortgage rates, focus and base it around what the next period of time looks like for you.
For example, do you need certainty, or do you need flexibility?
How long do you want the certainty for? And how much flexibility do you need?
If you need certainty, and lock your rates in for three years, you will know exactly what your repayments will be for those next three years. This may suit a young family, who are dropping down to one income while young children are raised.
If you plan to sell your property within the next 6 months, then flexibility is key, and locking in a shorter, 6-month rate is the better way to go.
The point here is, focus less on the Donkey and more on tailoring your loan to your own circumstances. That you can control. The Donkey? Not so much.
At the moment, it seems like there is a lot that I, or anyone else, seems to know.
I don’t know if there is going to be another variant to ravage the world and lock NZ down again (Hello Omicron???)
I don’t know how many businesses will continue to fall over next year.
I don’t know what house prices will do in Wellington next year.
I don’t know when Banks will stop being awkward to deal with(maybe 6 months).
I do know the only constant is change, and that has never been truer than in the last 24 months. The Donkey is here to stay, and unfortunately cannot be bribed with sugar cubes or carrots. I guess the only thing to do is to accept the Donkey and focus on what we can change, rather than what we can’t.
Hi there, I’m Graham and I started Velocity Financial nearly 20 years ago. I had for many years been running youth development programmes for The Salvation Army and I liked the idea of continuing to help people thrive in other areas of their lives. It started with helping first home buyers, and I now work mostly with business owners. This is around planning, lending, and managing risk for them and their staff. I’m passionate about community and connecting those in need with opportunity. I’ve been very privileged to do this in my previous career, now in my business and also for 20 years as a Trustee of the Te Aro Health Clinic. Our clinic delivers high quality health care for Wellington's most vulnerable and I'm very proud of the fact that Te Aro is now an integral part of Wellington City Health system. I work in New Zealand's two best cities, Tauranga and Wellington. In Tauranga I swim, bike and run (maybe YOGA if I'm feeling particularly aware!) and in Wellington I mostly seem to buy my adult children dinner and drinks.
Graham Goodisson (FSP95428) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Graham’s disclosure statement on our website.