Feeling a little dizzy trying to keep up with the news on OCR drops, mortgage rates, and the dreaded “R” word—recession? You’re not alone! So many homeowners have been Googling their hearts out, searching for answers to burning questions about what all these changes mean for their wallets, homes, and futures.
Personally, it really felt like we’d just gotten out of a recession; with tourism almost back up to pre-pandemic levels, this summer looked promising for so many hospitality and retail businesses. In addition to this, the OCR dropping by 50 basis points just before Christmas to stimulate more economic activity felt like New Zealand was heading in the right direction.
Until…
The data came through on New Zealand’s GDP (gross domestic product), showing a decrease of 1%, putting New Zealand into the deepest recession since the Covid-related slump in 2020.
And the question on all our minds is… what does this mean for me?
Well, you’re in the right place. We’ve gathered the top 10 most-asked questions (straight from what’s trending on Google) and broken them down into easy-to-understand answers. Whether you’re a homeowner, a concerned employee or business owner, or just someone who loves to stay informed, we’ve got your burning questions covered. Let’s dive in!
01. What is the current Official Cash Rate (OCR) in New Zealand?
As of November 27, 2024, the Reserve Bank of New Zealand (RBNZ) has reduced the OCR by 50 basis points to 4.25%. This decision was influenced by declining inflation, now close to the midpoint of the RBNZ’s 1-3% target band.
02. Why did the Reserve Bank decide to cut the official cash rate?
The Reserve Bank lowered the OCR to help boost the economy during a recession and keep inflation within the target range of 1-3%. With the economy slowing down and resources not being fully used, this move is meant to help the New Zealand economy recover and grow.
03. How does the OCR affect mortgage rates?
The OCR significantly influences borrowing costs. When the Reserve Bank lowers the OCR, banks often reduce their interest rates, making mortgages more affordable, which can make it a good time to refix. It’s a good time to have a look around at the current interest rates; use an unbiased platform such as Mortgages.co.nz or Squirrel to see who has the best rates.
04. How have recent OCR cuts impacted fixed-term mortgage rates?
Following the latest OCR reduction, banks have begun lowering fixed-term mortgage rates. Economists predict that one-year fixed rates could drop below 5% by early 2025, offering much relief to homeowners on higher fixed and variable interest rates.
05. Is it a good time to fix my mortgage rate, and how long should I fix for?
Mortgage advisors suggest that with anticipated further OCR cuts within the next quarter, opting for a shorter-term fixed rate, such as one year, might be advantageous. This strategy allows you to benefit from potential future rate decreases and end up paying less interest on your mortgage.
06. What will the OCR and mortgage rates look like in 2025?
The RBNZ projects the OCR to decrease to around 3% by the end of 2025. Consequently, mortgage rates are expected to stabilize between 4.5% and 5%, making borrowing more affordable. Interest rates will most likely never be as low as they were during the pandemic, so don’t wait around for a 3% or lower interest rate!
07. Will the recession affect the housing market?
A recession leads to slowing economic activity, impacting sectors like construction and real estate. While lower mortgage rates may boost housing demand, rising unemployment and economic uncertainty can potentially limit market growth.
As New Zealanders, we have a strange relationship with money – we’re almost too humble and money somehow falls under the umbrella of taboo topics. We don’t like to brag about ourselves or share how well we’re doing, whether that be in our job, our investments, or our financial position.
Whether you’re discussing how to divvy up household bills, save for a family vacation, or finally tackle that mountain of debt, money conversations are key to building a healthier relationship—with both your loved ones and with your bank account. It also doesn’t have to be a tense or uncomfortable conversation. In fact, with the right approach, talking about money can actually bring you closer together.
- What’s the government doing about the recession?
The National Party had promised financial relief for middle income New Zealanders who are dealing with rising living costs, high mortgage rates and record house rental prices. Finance Minister, Nicola Willis proposes to make further cuts to government spending resulting in more public servants losing, their jobs. She warns ministries not to expect any extra funding in the next budget – of which a substantial amount has already been pledged to health.
However, the government’s focus on slashing the budget deficit and reducing public debt could be worsening the impact of the recession on households and businesses, according to an open letter by a group of economists. They believe the government’s approach to managing public finances is short-term and short-sighted. Seeing whether NZ GDP increases in the next quarter will be hotly anticipated.
- How will the recession impact me?
A recession can affect people in different ways, depending on their financial situation. You might see slower wage growth, job insecurity, or higher unemployment in some industries.
On the upside, lower interest rates during a recession can reduce borrowing costs, which might make it easier to pay off loans or afford a mortgage. It’s a good time to review your spending plan, build up savings if you can, and seek financial advice to navigate any challenges ahead.
- How long will the New Zealand recession last?
The length of the recession depends on several factors, including how quickly the economy responds to lower interest rates and government measures to boost growth. Current projections suggest the recession may extend into mid-2025, with gradual recovery expected as inflation stabilizes and consumer spending picks up. However, economic recovery can vary, so staying informed and planning ahead is key.
11. Where can I find the latest updates on OCR decisions and economic forecasts?
The Reserve Bank of New Zealand regularly publishes updates on OCR decisions and economic projections on its official website. Additionally, financial news outlets and economic research institutions provide analyses and forecasts.
Understanding these aspects can help individuals and businesses navigate the evolving economic landscape in New Zealand. Staying informed and seeking professional financial advice are crucial steps in making sound economic decisions during these times.
A huge roadblock for many homeowners to reaching financial stability and freedom is their mortgage.
If you’re worried that your mortgage is stopping you from living the lifestyle you want and want guidance about how to decrease your debts during this recession, book a Breakthrough Call by clicking the button below.
