Banks swiftly follow RBNZ’s official cash rate cut

Wednesday, 27 November 2024

Property seekers were hoping Reserve Bank Governor Adrian Orr will announce a drop in the OCR today. He delivered a 0.5% cut.

Retail banks moved swiftly to cut their mortgage rates after the Reserve Bank of New Zealand cut its benchmark interest rate, the official cash rate, to 4.25% from 4.75%.

Kiwibank quickly followed the Reserve Bank move with news it would reduce in its home loan rates by 0.5% from next Monday for new loans and Dec 16 for existing lending.

“We are responding quickly to the Reserve Bank's changes by lowering our interest rates to help our customers save on mortgages and business lending, making them more affordable,” said Kiwibank’s general manager, home lending, Nicole Pervan in a statement.

BNZ is cutting its standard variable home loan rate, passing on the full OCR cut of 50 basis points.

“With Christmas approaching and many households managing their budgets carefully, lower interest rates should help make a difference for New Zealanders,” said BNZ executive customer, products and services Karna Luke in a statement.

ASB is dropping interest rates across personal, business and rural lending by 0.5% following today’s decision by the RBNZ to lower the Official Cash Rate (OCR).

“Today’s rate drops will make a meaningful difference to many individuals, households, business owners and farmers across the country,” said ASB’s executive general manager business banking Rebecca James.

The last two announcements have brought a rush of interest from property seekers each time. And the third could bring action rather than just searching.

“As interest rates decrease, we are seeing signs of increasing confidence and movement in the housing market,' said Kiwibank’s Pervan in her statement.

A slowly recovering property market has been buoyed mainly by first home buyers in recent months, taking advantage of a drop in average house prices.

Realestate.co.nz spokeswoman Vanessa Williams said inquiries on residential listings increased by 8.4% in the two weeks after the August drop to 5.25 and after the October drop to 4.75 there was a huge increase of 18.7% for the two weeks after.

The surge in interest was from those moving from passively viewing to actually calling an agent.

Realestate.co.nz spokesperson Vanessa Williams says New Zealanders often take a wait-and-see approach ahead of OCR announcements.

Williams said another shift could impact buyer and seller behaviour across the country:

'New Zealanders often take a 'wait-and-see' approach ahead of OCR announcements, doing their research in advance but delaying key decisions until the rates are confirmed. If the OCR drops again, we may again see buyers move quickly, with an uptick in inquiries and market activity.'

She said that behaviour highlighted how OCR announcements could impact the “mood of the market”.

15 economists have written an open letter to the Govt saying: 'Fiscal policy is needlessly exacerbating the current recession'.

'A lower OCR can give buyers the confidence to take the next step. Sellers also stand to benefit as heightened buyer interest can drive competition, especially in areas with limited supply.'

Williams said she was excited to see what it could mean for a suppressed property market, where there had been challenges such as a rising cost of living and high interest rates.

“With a suppressed market there is a level of transactions that have not occurred yet. ”

Williams said for Kiwis who were nervous about transacting with uncertainty in the air a cash rate drop would bring more confidence and positivity.

Velocity Financial director Brendon Ojala echoed that there was a wait-and-see attitude.

He said a lot of clients had been holding off until the announcement but he was expecting to be very busy for a while once the announcement came out.

Velocity Finance director Brendon Ojala is predicting a busy afternoon after the OCR interest rate announcement.

“Absolutely we are getting more first-home buyers along with people looking for their second properties.”

He was also receiving more interest in investment properties.

Ojala said while banks would drop their floating rates quickly, fixed rates were likely to take longer.

“I think expecting fixed rates to drop immediately is a touch optimistic.”

CoreLogic NZ chief property economist Kelvin Davidson is predicting another cut to the OCR.

Nationally property sales activity increased by 16% in October compared with the same time last year.

CoreLogic NZ chief property economist Kelvin Davidsonwas predicting another cut to the OCR and for mortgage rates to keep falling.

In the latest monthly housing report he said listings on the market were still high.

“The sluggishness of sales is solely about buyer demand still being limited by high (albeit falling) mortgage rates, and those buyers with finance still taking their time and being selective.”

Davidson said there were new caps in place that limited borrowers’ loan sizes in relation to their income: debt-to-income (DTI) ratio limits.

He said as interest rates declined, he was not yet expecting DTI’s to shut out large number of would-be first home buyers or budding landlords.

ANZ’s economic outlook report also predicted a cut, even going as far as to forecast a rate of 3.5% by mid next year.

The New Zealand Institute of Economic Research was also predicting another cut with principal economist Christina Leung saying lower interest rates had supported a recovery in consumer and business confidence.

The economic consultancy is also looking toward a 3.5% rate next year.