Navigating the Interest Rate: What it means for property investors.

November 23, 2023

Interest rates have gone up lately, making it tough for property investors and homeowners to manage mortgage payments. This spike in rates is due to the hangover from the COVID era, where low rates, hefty government spending, and a tight job market led to higher inflation. To tackle this, the Reserve Bank bumped up the OCR(Official Cash Rate) to cool things down, resulting in pricier mortgages and reduced cash flow for property investments. 


But the big question on everyone's mind is, "When will rates come down?". The financial forecasts suggest a gradual decline over the next year, starting from around 7% now to about 6% by next year and eventually hitting 5% in 2026. However, these predictions are just educated guesses; things can change based on global events that affect the economy. 


Banks like ANZ are in line with predictions, expecting a decrease in rates from their current highs. This shift is largely tied to inflation, which shot up to 7.3% but is now slowly heading down. Most banks think inflation will get back within a healthy 1.3% range by 2024, likely prompting the Reserve Bank to consider lowering rates. 


The OCR, set by the Reserve Bank, influences other interest rates. Though the Reserve Bank does not plan to drop the OCR until 2025, interest rates might decrease earlier if the market anticipates the OCR going down soon. Ultimately, the aim is to balance the economy, ensuring it does not grow too fast or too slow. 


In the long term, economists predict the average fixed mortgage interest rate will be around 4.5%. This figure is not set in stone; rates will fluctuate over time based on economic conditions. 


If forecasts are wrong, it is smart to plan for higher rates or consider locking in for a longer term for peace of mind. Running numbers and stress-testing your investments can give you a clearer picture of your financial situation. 


Remember, economic crystal balls are not perfect, and flexibility and preparation are key when it comes to managing mortgages and property investments. 

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