New Zealand Interest Rates Update July 2024

Lately, a lot of clients and friends have been asking me, “When are interest rates going to drop?” and “How should I choose my fixed term if my loan is up for refix or about to settle a new loan?” As we just entered the second half of 2024, I wanted to share with you some insights and general advice to help you navigate the market. 

Current Economic Situation and Interest Rate Predictions 

Even though the Reserve Bank of New Zealand (RBNZ) said they might not cut rates until the end of 2025, most bank economists think the Reserve Bank might not fully understand what's happening with our economy right now. Surveys show that business confidence is extremely low. The construction, service, and retail sectors are really struggling, and people are cutting back on spending because the cost of living is so high. I've heard from HR companies that more businesses are going through restructuring or even closing down, making this the worst time they have seen in the last ten years. 

Because of all this evidence, economists are predicting that the Reserve Bank might lower rates as early as November this year to prevent things from getting worse. If they’re right, you might not want to lock in your interest rate for too long. I’d suggest going for a term between six months to a year. If you fix your rate for too long and then rates drop, you are likely to pay high break costs, which could eat up any savings you might gain from the lower rates. 

Choosing the Right Fixed Term 

When deciding on the length of your fixed term, consider your own situation and plans. For example, if you’re planning to sell your house this year, a floating rate or a six-month fixed term might be better for you. This allows you the flexibility to adjust your mortgage without incurring high break costs. On the other hand, if you think your household income might go down, fixing your rate for a bit longer could give you some stability, ensuring your payments remain manageable. 

Lump Sum Repayments and Offset Products 

When refixing your rate, it’s also a good opportunity to consider making lump sum repayments. If that’s the case, take advantage of your bank’s revolving or offset products. These can help reduce your interest costs while allowing you to access the money when needed, providing flexibility. If you repay the loan and later need the money back, getting it can be challenging, as banks usually need to reassess your capability based on your income and lending policies at that time. 

Conclusion 

These recommendations are based on the current economic conditions and analyses from economists. However, keep in mind that New Zealand is a small economy, and home loan rates can be influenced by many external factors, such as international events. Therefore, things can change quickly. 

If you want more personalized advice on how to fix your loan rate, feel free to get in touch. We’d love to help you make a smart, well-balanced decision.