Yes, what a mess we have ended up in – global volatility has thrown a bit of a spanner in the works this year.
Most of us had probably expected a better start to 2026 with the economy looking to be picking up early in the year, and then Trump started bombing Iran and everything changed.
There is no question now that the conflict has led to a crises in the Middle East, and that is causing issues around the world. The main issues is the lack of shipping through the Strait of Hormuz (the waterway between the Persian Gulf and the Gulf of Oman) which means oil is unable to get to the markets that need it. This is putting upward pressure on oil prices, and that affects us all and especially countries like New Zealand that rely on trade and doing so with large distances.
Of course Kiwis are affected at the fuel pump with huge increases, but it will be the increased freight costs that concern us more as that will affect so much of what we buy. Almost everything that we buy has a freight component and as the crises in the Middle East drags on the reality of the higher costs starts to bite.
We had only just felt like inflation had been controlled and now we are starting to see prices rise, pressure on inflation again and as we know that could lead to the Reserve Bank increasing interest rates.
What a mess – and it’s a mess that we have very little control of.
The Reserve Bank OCR & Monetary Policy
On the 27th May we had the latest OCR Announcement and Monetary Policy Statement from the Reserve Bank.
The The Reserve Bank of New Zealand (RBNZ) has held the Official Cash Rate (OCR) at 2.25% but the Monetary Policy Committee commented that they need to balance economic recovery with rising global inflation risks and has indicated that interest rate hikes are coming sooner than previously expected.
The next OCR Announcement is on the 8th July and there is are some economic commentators saying that rates could be increased then, while others are saying that the increases will come later in the year. What is universal is that everyone is now saying we will have increased this year and so we should all be prepared for these.
Should we be concerned?
Here at Mortgage Managers we monitor these things and have been working with lots of clients on refixing home loans. For some time now rather than focusing on the short-term refixes that have been promoted by many of the banks and other mortgage advisors, the recommendation is to set goals and establish or go back to your strategy and refix at least some of your mortgage for longer periods.
So NO we should not be concerns as we always expect that interest rates will change, and sometimes they increase and other times drop.
We have always said that if you’re risk adverse, then fixing some of your mortgage for five years is a pretty good option. It gives you some certainty around rates for a decent length of time, and if you retain some of your mortgage on the one and two-year rates, you therefore have flexibility as well.
The key is to structure your lending so that you are not impacted too much when interest rates increase, but also ultimately so that you have the ability to pay your loans off faster as that is the best way to reduce any risks.
Lets Discuss The Budget Too
Was this budget what you expected?
We had not expected much from the budget as the Finance Minister had already been saying pre-budget that it would be responsible and disciplined without any significant cash sprayed around. That’s unusual for an election year budget, but when there is no money then it would have been a shock if there were big promises.
So the budget was announced and there were very few surprises.
Probably the only real surprise was that the economy is expected to return to a surplus earlier than expected, and this was a real surprise given how the lack of confidence that Kiwis have in how things are going economically. Therefore to hear that it’s projected that we will have a NZ$2.6 billion surplus by 2028/29 and that’s up from the $900 million deficit the government forecast in December, and also a year earlier than previously expected. It’s just a projection, but will be great if they can achieve this.
Apart from that, the main points we not really too surprising.
There was the big increase to the health budget which most Kiwis will welcome, and then there were a number of infrastructure announcements. We had already been advised of the increased defence and foreign affairs spending and changes from the 3rd year free to a more trades focus for the education sector.
In areas that affect finance and property, we saw the new prudential levy on banks and non-bank deposit takers as well as a significant increase in the number of social houses to be built.
Overall the budget was quite restrained as expected, and we cannot see that it will have any immediate impacts on most Kiwis.
Let’s Avoid A Mess & Review Things Today
Let’s round this off by saying, we know that things like the Middle East conflict can create a mess to a small country like New Zealand, and while we hope that this will end soon, there will be future things that affect our economy and interest rates too.
As always we’re recommending that you establish or revert to a good mortgage strategy.
That should include having some flexibility in your loan by using a revolving credit or offset account, and then splitting your home loan, potentially with some over the longer five-year period, to give you that extra certainty.
It’s important that you understand what flexibility you have within your fixed home loans and try to round your payments up a bit, remembering that every extra dollar that you pay on your home loan goes straight off the principal. It means you can save a lot of money in the long run. It’s definitely something worth doing, especially while interest rates are at the current levels.
It’s always harder to pay extra on your home loan when the interest rates increase so try to make the most of the low rates that we have now.
If you have any other short’s term debt, then have a look at that and see whether that can be refinanced into the mortgage to get the lower interest rates. But try not to extend the term that you’re paying it off over.
Also, if your equity in the property is under 20%, then set yourself a goal to try and get 20% equity in your property so that you can take advantage of the special rates on offer.
The team at Mortgage Managers know how to navigate through economic times when things may seem a mess or a concern that adds financial pressure to Kiwis. It’s always important to establish goals, and events like this remind us that good mortgage strategies really do help keep things stable here too.
You can be assured that Kiwi Edition is constantly watching what happens in the New Zealand financial markets, highlighting when there is a mess and of course we will report any changes as we see things happen – so bookmark this and pop back from time to time.
