Interest rates and pre-approvals: What's going on?

November is proving to be a hectic month in the lending space, with first home buyers in particular coming out of hibernation and being aggressive in the market, coupled with a downward trend in interest rates encouraging movement from existing homeowners and first home buyers alike. But not all banks are open for business, and 'rate hype' may be overinflated.

Interest rates

We all know the Official Cash Rate has just been cut, but does that actually mean you're in for chunky interest rate cuts?

Dampen expectations and remember: interest rates alone shouldn't drive your decision making.

I've spoken to a lot of people recently that've been fixing short-term or just floating their mortgage, in the hopes that holding out will lead them to lower longer-term rates. Don't get me wrong, rates have been coming down, but my experience is that people tend to make a mess of things when interest rates are their sole focus - and people may have unrealistic expectations of what's to come for interest rates.

Life stages and future intentions should play a big part in your decision making process when deciding how to refix your loan. For example, fixing longer-term (because that may offer the lowest rate) when there's the potential for work or life changes in the future could prove costly down the line if break fees need to be paid - remember, the lower rates get, the higher break fees tend to be. Already I'm seeing quotes for clients looking to break $200,000-ish mortgages that are fixed for 5.79% being near $3,000.

In addition, we generally want to keep some separation between the refix dates of our other mortgages, to ensure any future interest rate impacts aren't immediately felt, and avoid the potential for massive repayment increases overnight.

That said, the OCR was cut again yesterday - so does that mean more cuts to fixed interest rates? In due course, surely. However banks had already priced this decrease into their current fixed rate offerings, and the only rates to be decreased on the day by all banks were their floating rates - ASB and Westpac did decrease their advertised fixed rates too, but only in line with what most other banks were already offering, and realistically banks were and are already offering lower rates than what you see advertised anyway - so this is more of a facade than genuine savings for average Kiwi mortgage holders.

The only winners thus far from the OCR cut are floating mortgage holders, and economists like Tony Alexander are suggesting rates are very unlikely to go back to previously seen lows, and could 'bottom out' mid next year.

So, don't be blinded by rates - make smart decisions that take your personal situation and plans into account.

I'm here to help refix your mortgage free of charge, so just reach out if you want some free advice.

Pre-approvals

This may well be the toughest time in recent years to obtain finance to buy a home.

But how can that be, you say? Interest rates are down, as are the rates banks assess mortgages at?

And you're right - but unfortunately, too many people seem to agree. All banks are reporting being swamped with applications, with many's wait times for assessment blowing out to 3+ weeks. This overload of applications has led Westpac, BNZ and ASB to close the doors to applications from clients wanting a pre-approval that don't currently have a 'main banking relationship' with them (that means having your salary paid into one of their accounts).

This means, for most, that there's only one or two banks that are open to pre-approving new-to-bank customers, and severely limits your options - and likely how much you may be able to borrow, given each bank has different rules and niches.

The way around this is to approach a bank with a 'live deal' - this means getting an offer accepted on a property that's subject to finance, as most banks are still able to look at these, however it can be stressful making offers without knowing what your budget is, or whether or not it'll be approved.

It's hoped the overload will sort itself out come Christmas, but in the meantime you need solid guidance from an adviser that can navigate the challenges and find you  a solution - so talk to an adviser first.

I'm here to help, just reach out if you'd like to chat.