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The cost of living is going up , and interest rates are high. These two factors alone mean many New Zealanders are currently juggling their financial commitments. The question on everyone’s mind is, ‘When will interest rates go down?’ We asked our Head of Mortgages, Aseem Agarwal, for his interest rate predictions, and he has some good news.
The ups and downs of inflation
One of the primary drivers of interest rate changes is inflation. The Reserve Bank of New Zealand aims to keep inflation within a target band of 1-3% (it’s currently sitting at 6%.) Fortunately, inflation has started moderating, and the Treasury expects inflation to fall to 4.5% by the end of 2023. By late-2024, predictions are that the OCR will drop again to below 3%. Because of this trajectory, Aseem says there should be more favourable lending conditions by the end of next year.
“We anticipate a drop in the OCR sometime between October and December next year. When the OCR goes down, so will interest rates. We always tell our clients to monitor these developments closely.”
Short-term stability
As we wait for inflation to go down, Aseem says interest rates should remain relatively stable in the immediate future.
“Borrowers can expect a certain level of consistency in mortgage rates for now. Economists predict they will stay the same for the next 12-15 months.”
This means homeowners can confidently budget and manage mortgage payments without worrying about sudden fluctuations. But various factors influence our financial landscape, and rates can change due to unforeseen events.
Overseas borrowing costs going up
New Zealand banks often borrow funds from international markets to meet their lending requirements. As the global economy recovers from the pandemic and the war in Ukraine, overseas lenders will raise their interest rates to combat inflation and support economic growth.
Aseem explains that when the cost of these funds goes up, our domestic banks tend to pass on the expense to us through higher interest rates. He adds that while interest rates have plateaued, it’s still possible they could rise again.
“Global borrowing costs are always fluctuating. New Zealand banks have increased their lending rates to accommodate, but paying attention to the global economy is always good to help keep you prepared.”
Warmer months could bring a temporary drop
There might be a temporary drop in mortgage rates during the spring and summer months. Increased housing market activity during this period could lead to a ‘bidding war’ among banks, compelling them to lower rates to attract more customers, says Aseem.
“If demand for housing decreases and mortgage applications follow suit, banks could resort to offering rate reductions.”
If you want to secure a mortgage or refinance, keep an eye out over spring and summer – you might be able to take advantage of lower interest rates. Just remember that these fluctuations will likely be short-lived, and long-term trends should also guide your borrowing decisions.
Hope on the horizon
Overall, Aseem’s optimistic about interest rates. At the very least, they should stabilise over the next 12-15 months, and if the OCR drops at the end of next year as predicted, interest rates may even go down. While it’s still uncertain, staying informed and flexible regarding market trends will help you navigate 2024 more confidently.
Want to make a financial plan for the year ahead? Get in touch with the experts at Global Finance today.
The information and articles published are true to the best of the Global Finance Services Ltd knowledge. Since the information provided in this blog is of general nature and is not intended to be personalized financial advice. We encourage you to seek Financial advice which is personalized depending on your needs, goals, and circumstances before making any financial decision. No person or persons who rely directly or indirectly upon information contained in this article may hold Global Financial Services Ltd or its employees liable.