Interest rate hike may mean it’s time to review your mortgage
The Reserve Bank of New Zealand (RBNZ) has introduced its fourth consecutive interest rate rise in a dramatic attempt to rein in rapidly rising inflation.
The 0.5% increase is designed to try to stop inflation breaking the 7% barrier and potentially stalling the economy. It was the biggest increase in 22 years, taking the Official Cash Rate (OCR) to 1.5%, the highest since June 2019.
RBNZ had been expected to edge up the rate by 0.25% but said its more dramatic move was intended to prevent high inflation – which is currently at its highest level for three decades - from becoming entrenched. Currently, inflation is 3% ahead of target.
The bank also stuck to its previous prediction that the OCR would peak at 3.35% by the end of next year.
New Zealand has been one of the most aggressive countries in raising its cash rate, using it to help calm runaway inflation, skyrocketing housing prices and supply-chain problems caused by the pandemic.
The RBNZ said it believed the new cash rate was still sufficiently low to stimulate economic activity while dampening aggressive price-setting and taking some heat from the record-breaking property sector.
As a homeowner this news means now could be a good time to consider how to handle economic headwinds. If you’re facing increasing mortgage payments, there are options available to help you minimise the impact of these decisions.
One option could be to consider moving to a fixed interest rate for all or a portion of your loan. Interest rates remain at historical lows even after these last four increases, but more hikes could be on the way and now could be a good time to lock in your rate.
As a mortgage adviser, we can guide you through your options or assist with a mortgage health check to help you weather the current storm.