Falling interest rates have been the big mortgage and property story for 2019. 

Everyone wound themselves into a froth earlier this month when the RBNZ reduced the OCR. And while the banks didn’t follow suit immediately, manna from heaven was eventually delivered about a week later. 

The one-year fixed rate has subsequently hit 3.55% and some say interest rates might go even lower. 

But it is still bloody hard to get your hands on that cheap money.

I’ve written previously about the test rate that banks apply when assessing your borrowing capacity. It sits in the mid-7% range. 

For many, it’s a significant hurdle to owning a home, and I’ve often found myself saying “money could be free but if you can’t get your hands on it, who cares?”.

The higher rate is actually a stress test, and while everyone appreciates the need to do that, the gap between reality and imagination had become rather stretched

This week however, things have begun to change. Yes, the test rate the banks use has begun to fall.

Three banks have done it already and the rest will follow soon. 

It means every dollar of income now buys a bit more mortgage than before. More people will be able to buy a property. Others will have more scope to buy something just that little bit better.

I can’t help but think the RBNZ has had a quiet word with the banks to further its monetary policy aims. I can hear Adrian Orr saying ‘open the valve a bit more boys, get people borrowing, get them spending’.

Against that, the banks have really taken the microscope to your living expenses. In times gone by they would accept what you wrote down, or even ignore that and just use a default position based on number of adults and children in the household. That’s not the case anymore. They are going through it almost line by line and adding up what your actual expenses are – it’s harder to hide and harder to fudge things to make your application look better. And that, my friend, takes some of the gloss off the above.

Still, the impact is – on balance – positive for borrowers.

Get the wheels of home ownership turning! Get in touch for a chat if you want a clearer understanding of how far your money stretches.

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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