Explaining the Official Cash Rate, a very simple explanation and why it’s relevant to homeowners.
Much talk in the media has recently been about the Official Cash Rate or OCR. If you are considering buying a new house, understanding the role of the official cash rate (OCR) in the economy and how it can affect your ability to obtain and service a mortgage is essential. Taking on a large mortgage is a bold step for anyone, but if you have access to land, it may be more effective to consider a transportable home?
Regardless of whether you plan to purchase your first house or a transportable home for your and, we thought a basic summary to demystify the OCR’s relationship with you might be useful when considering buying a home!
The OCR is the interest rate that the Reserve Bank of New Zealand (RBNZ) sets, and it influences the interest rates that banks charge for mortgages and other loans. The RBNZ uses the OCR to manage inflation and support economic growth. When the economy grows too quickly, the RBNZ may increase the OCR to slow down spending and reduce inflation. Conversely, the RBNZ may lower the OCR to encourage borrowing and stimulate growth when the economy is sluggish.
So, how does the OCR affect you as a home buyer in New Zealand?
Mortgage rates may fluctuate: When the OCR changes, banks may adjust their mortgage rates accordingly. If the OCR goes up, banks may increase their interest rates on home loans, making borrowing more expensive. This can make it more difficult for some buyers to afford a mortgage, which could slow down the housing market. On the other hand, if the OCR goes down, banks may lower their interest rates on home loans, making it more affordable to borrow. This could lead to increased demand for homes and drive-up prices.
Affordability may change: If mortgage rates go up, it may become more difficult for you to afford a mortgage. Higher interest rates mean higher monthly payments, which could strain your finances. If you’re already stretching your budget to afford a home, an increase in mortgage rates could push you over the edge. Conversely, if mortgage rates go down, you can afford a more expensive home or get a better deal on your mortgage.
Housing market conditions may change: The OCR can also impact the overall housing market conditions in New Zealand. If the OCR goes up, it may lead to a slowdown in the housing market as fewer people can afford homes. This could result in lower prices or a decrease in demand for homes. If the OCR decreases, it could lead to a more active housing market as more people can afford homes. This could lead to higher prices or an increase in demand for homes.
Chat with your bank or your mortgage broker about the current OCR, how this affects your situation and for economists’ insights, check out https://www.tonyalexander.nz/