RECENT UPDATES ON OCR: A NEW SET OF CHALLENGES FOR THE FIRST HOME BUYERS

by Dev Dhingra

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Apr 18, 2022

After CCCFA, another knock-back to the first home buyers is the overnight hike in the OCR (Official Cash Rate). The Reserve Bank of New Zealand increased the cash rate to 1.5% to support maximum sustainable employment and achieve price stability. You might wonder about the connection between increased OCR and rising property interest rates; this blog will vividly describe the relationship between interest rate and OCR and how it will impact buyers planning to purchase their first dream home.

OCR And How It Functions

OCR is an interest rate fixed by the Reserve Bank, and it determines the wholesale price of borrowed capital.The Reserve bank uses the Official Cash Rate as an effective weapon to control inflation and manage capital supply. A slight change in this rate affects the bank’s interest rate charge for borrowing on credit cards, loans or mortgages. Generally, the Reserve Bank updates the cash rates seven times each year whenever inflation impacts the economy.

An interesting fact borrowers should know is that OCR has a significant impact only on short-term interest rates as most banks won’t move forward with loans that are higher than that of money or rates, they receive from RBNZ. 

New Update on OCR By RBNZ

According to market researchers, a hike in the cash rate is undoubtedly a warning sign for would-be home buyers; hence, interest rate on home loans will reach new heights this year.

According to the Reserve Bank, one primary reason behind rising inflation is supply disruptions due to the pandemic. Furthermore, the ongoing Russian invasion of Ukraine is resulting in a marked hike in the commodity prices that are internationally traded.

As per Brad Olsen, the principal economist at Infometrics, New Zealand’s economy is already restrained, and this hike will further add more woes. Before this decision takes a toll on economic growth, he recommends a strict action.

This overnight rise in the official cash rate will frustrate the borrowers with low deposits. Until inflation is under control, those looking for a home loan or mortgage with a low deposit should wait. The decision is a direct cause of the recent upsurge in COVID cases again; proving harmful to economic growth and increasing OCR can be the way out. 

Impact of Rising OCR on The First Home Buyers

The minimal increase of 1.5 in OCR is predicted to prove burdensome for the first home buyers as now they have to pay hefty interest on borrowing a home loan. For long, property prices in New Zealand have been relatively high; now, with this new change, it will be more difficult for first home buyers to survive the blow.

As far as the current situation is concerned, buyers are pondering the question of “to buy or not to buy “. Well, worrying about the situation is no solution; instead, it’s essential to consult an expert mortgage broker who can offer some ray of hope. Right financial planning can be a key to adapting to the policy changes.

Final Thoughts

To tackle the fluctuating interest rates, kiwis planning to buy their dream home should determine their spending behaviour and based on it can move ahead with saving goals. In case of any confusion, talk to a mortgage broker who can help by suggesting strategies to save more for a house deposit. With the right kind of financial decision, first home buyers can lock the best mortgage or home loan deals amidst hike in the interest rates.

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