Fixed mortgage interest rate coming to an end? Time for proper advice.

According to the latest OneRoof-Valocity figures NZ’s average property value hit bottom in June 2023, falling 14% from a peak of $1.097m in February 2022. The lift from the trough to the end of April 2024 is 3.4%. Meanwhile, interest rates rose as the Reserve Bank seeks to control inflation, although they have stayed steady in 2024 with the current Official Cash Rate sitting at 5.50%.

Interest rate rises are widely thought to have ceased for now but as the media has been warning for the past couple of years, a significant number of mortgage-holders are about to encounter the end of the rock-bottom rates they fixed at around three years ago. Unfortunately, there’s no sugar-coating the fact that this is likely to impact many NZ households and cause considerable concern.

Optimistically, homeowners have known this situation was on the cards, and most have had time to prepare. Nevertheless, those who bought at the height of the market are now about to experience an emotional and financial double-whammy with a home that’s currently worth a lot less than they paid for it with the prospect of much higher monthly payments ahead – at least for the foreseeable future.

What should those who are affected, do?

The property market is cyclical, and we’ve been to this dance before. Those in their 20s and 30s might find it reassuring to chat with their parents and their parents’ friends, with many of them purchasing their first homes in the 1980s when interest rates reached unbelievable highs – at one point greater than 20%. Sure, properties were cheaper but for many a 20% interest rate was like climbing a steep hill with a heavy backpack.

The good news is that rates were back down at 11.2% when formal records began in 1998 and, since then, despite fluctuations, the average floating rate has been around 6.9%, so, what we’re seeing – after near-record lows – is a correction, taking us back closer to the norm. Phew.

Is it worth re-assessing our financial goals?

Yes, absolutely. If you decide to stay in your current home for longer than you had originally intended, that’s an instant-positive because it means that the marketing and commission fees involved with selling and buying, plus moving costs and other associated expenses aren’t going to weigh you down anytime soon.

If you bought a do-up, it will pay to be philosophical for the moment as the finance might not be there for you to create your dream home as quickly as you’d hoped – but it will happen. Refinancing your current home loan to free up some equity for projects and renovations could be an option.

Are we likely to see an increase in Mortgagee sales?

Mortgagee sales don’t serve either party particularly well, so banks will only go down that road as a last resort. You might be surprised at how willing your lender is to discuss possibilities and reduce the burden of rising interest rates on your household. They’d rather see you stay in your home and ride out the storm as opposed to selling up from under you – at a loss to themselves, with legal and administration fees on top – plus they’d be missing out on all the interest you would have paid over the term of your loan.

Good communication is key here. Get proper advice with a Financial Adviser. Be completely honest about your circumstances and, in most cases, you should be able to find suitable solutions to overcome increased costs to your household.

What might a bank recommend?

If you are currently dealing directly with a bank, they might ask you to consider renewing your mortgage at the current fixed rate (which is around 6.8%, so nearly dead-on the average for the last 25 years or so) or move to a floating rate, which leaves more room for manoeuvre if interests rates go down markedly in the next couple of years.

They also might suggest you restructure the loan with them in order to negotiate a better rate – or perhaps extend the term of your mortgage. It’s also possible to split your loan into separate chunks with some fixed and some floating, which can help mitigate risk.

While nobody relishes the idea of continuing to pay their mortgage off past retirement age, there’s every likelihood that circumstances can change along your journey – you might get an inheritance or a higher paying job, and house prices are very likely to rise again, so the long-term scenario isn’t necessarily as bleak as it may seem now.

How can a Properli help?

Sometimes, it makes sense to start again with another bank – and a clean slate, as it were. There’s every reason to shop around – especially if your own bank isn’t being 100% helpful and maybe find another lender who can better accommodate your own unique needs.

If you haven’t consulted a Financial Adviser up until now, this is definitely worth considering, as they are trained and familiar with the lending institutions in New Zealand. This type of input can save you a great deal of legwork because a reputable Financial Adviser won’t waste your time and is committed to helping achieve the ideal outcome for your situation – swiftly and smoothly.

Do we really have to give up takeaway Flat Whites?

Hopefully not. Some alternatives to cutting back on life’s treats are switching phone, internet and/or energy providers. Review all of your subscriptions and decide which ones are vital or you’re no longer using as much. Look at buying food in bulk, or even growing your own, and work out whether you currently have the best deal on your credit card (or even ditch it altogether)!

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