Westpac forecasts OCR to stay at 1.75% until Sept next year

Westpac forecasts the RBNZ will keep the OCR at 1.75% until Sept next year, and predicts that the Reserve Bank will ease restrictions on LVR ratio by the end of this year.

The RBNZ released a report this week outlining that the key areas of concern were household debt and international shocks. International shocks could include oil price shocks and sudden wars. So the RBNZ are taking a conservative approach before deciding to change the OCR or change the LVR restrictions. In NOvember 2017, the RBNZ relaxed the LVR requirement and allowed investors to borrow up to 65% to buy an investment property. Previously, investors were  required to come up with 40% deposit which meant they could only borrow up to 60%.

Given the RBNZ is cautious about household debt, it is likely that LVR limits will continue to be inforce. Further, the ability for borrowers to take on revolving credit (a form of credit where borrowers can borrow monies to fund cars, travel, boats as long as they using their house as a form of collateral/guarantee) has allowed households to take mortgage debt to fund consumption. This is particularly risky for banks and borrowers, if New Zealand housing market crashes or the world enters a global recession.

Taken all this into account, now is the time to be cautious when borrowing to fund consumption. With regards to borrowing to buy investment property, as long as you have done your homework, and the location is right and the numbers make sense, go for it. If you are borrowing to speculate, just be aware of the risks before you go ahead and do so.


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