Official Cash Rate slashed to record low, but what does this mean for you?

In response to subdued economic growth and tempered household spending, the Reserve Bank of New Zealand (RBNZ) has today announced that the Official Cash Rate (OCR) has dropped 50 basis points to an historic low of 1%.

At its most basic level, the OCR can set the rate for mortgage repayments as well as the amount of interest earned by deposit accounts. It has a huge impact on the value of New Zealand’s dollar – and generally, a lower rate results in a lower value currency aimed at fuelling economic growth.

But, just what does this mean for you? Canstar takes a look.

Existing homeowners

To put it plainly – a lower OCR is generally good news for borrowers; namely anyone with a mortgage. As interest rates drop, debtors are obliged to pay less toward their debts. Alternatively, as credit becomes more affordable, an OCR drop can become an opportunity for homeowners focused on paying off mortgage debt quickly. Cheaper credit can also encourage activity across the housing market.

First home buyers

As we have enjoyed historically low interest rates for some time now, many of the major institutions have priced the expected OCR cuts into floating and fixed-term mortgage rates. While the low-interest environment certainly creates opportunity for first home buyers to enter the market, their ability to service a loan (which could result in borrowing more) remains a concern for lenders. Those looking to buy in the next 12-months may see a rise in competition for properties as affordable credit encourages first-home buyers to take their first step onto the property ladder.

Compare home loan interest rates

Retirees and savers

While benefiting from lower interest rates on the mortgage of a family home and/or beach house, retirees and pensioners are likely to see a lower rate of interest applied to term deposits and savings accounts. Having a potentially significant effect on New Zealand’s ageing population, there has been speculation that this may cause some savers to seek higher interest rates through unfavourable lenders and riskier investments.

Renters

For those of whom home-ownership is a distant dream, the dream may have just drifted that little bit further. The OCR cut has resulted in a drop to the Kiwi dollar, making imports such as fuel and other food products that little bit more expensive. Interest accrued on savings have also lessened, meaning while the cost of living is higher, the rewards for saving are lower – altogether creating a more difficult climate for those aspiring to home ownership.