Floating rates down, fixed rates steady
The OCR was dropped once again yesterday afternoon by 0.5% to 4.25%, and immediately most of the major trading banks have dropped their floating or variable rates.
As of Friday 29th, no word yet on fixed rates which we expect will filter through in the next week or so.
However, this is great news for all of us in that the cost of borrowing money is now firmly dropping, and we're seeing a clear direction of travel from the Reserve Bank for 2025, too.
How long should I fix for?
Since the last OCR drop in October, we’ve been keeping a close eye on rates and generally we’ve seen a gap widening between the 6 and 12 month fixed terms, making the latter a little more attractive, particularly for those who are keen to keep costs down.
In line with this, key data will be coming through in early 2025 around how Christmas spending has impacted the economy.
In the meantime, for those refixing or with settlements coming up, a short-term fix remains a strong option, and there are considerations around the following';
Six-Month rate - A little pricier (about 0.5% higher than a 12-month rate with most banks), but can provide flexibility and a likelihood of a better rate sooner in 2025
12-Month Rates - Slightly lower and great for managing cash flow, a bit more certainty around repayment, and also better if you'd rather not need to re-fix again in 6 months time
In general terms, a 6 month rate is a good fit for those with excellent cashflow, a tendency to want to manage their lending closely, and also those with income, lending or policy changes coming up in the first half of 2025.
A 12 month rate fits those who need more certainty around cashflow, and a lower borrowing cost.
Should I be looking at other options at refix time?
For those with rates coming up for re-fix, we're having a lot of conversations around whether looking out at other lenders is viable.
We're big fans of ensuring the best fit for your lending ongoing, and throughout the journey of property ownership, the right option can change over time.
Particularly if you've had changes in the last few years in income, equity position, financial goals or family, it's worth a chat - there are big savings to be had with the right structure and lender to suit your needs.
Policy changes, big impact
Following the OCR drop this week, another less well publicized piece of news is that several of the major lenders are dropping their test servicing requirements, and we expect the other banks will follow suit over the next few weeks.
Those who have been following bank policy changes over the last few years may have heard of banks testing affordability based on rate in the 8% range, which for a time, did reduce what people could borrow.
These rates are now following the reduction in floating rates which is now increasing capacity to borrow once again and opening up options for a lot of our clients to refinance, sell and buy or top up for renovations.
This shift has had a fairly significant impact on borrowing capacity already. For instance, one client’s upper limit increased from $900,000 to $1,100,000—an extra $200,000 in buying power.
If you’ve been pre-approved or previously spoken with us but held off due to borrowing limits, now’s the time to recheck your position.
Talk to us
If you're not sure how to approach your fixed rate review, next purchase or whether there are better bank options out there - we'd love to chat.
Book in a call below with one of our Team who can help figure out where you're at and make a plan!