If you consider your monthly expenses and where your income goes, in most cases the largest monthly expense will be your Home Loan Repayment. The payment usually includes an interest portion (the amount the Bank charges you for the use of money) and also includes an amount which is used to reduce the principle. There is an end game when the loan is repaid in full, and the expense no longer exists. This drastically increases your disposable income.
With the current interest rate tightening cycle we are experiencing, these rate rises or cost of borrowing impacts you by reducing your household disposable income. These rate rises have a real tightening effect, both reducing your disposable income, and impacts also by reducing credit availability, as the Bank’s factor in higher Loan Servicing Costs when making decisions on approving or declining loans.
Combining this with the local market conditions we are experiencing currently;
- Lower Real Estate Sales Volumes – MERINZ Stats
- Less Credit Availability (due to higher rates)’
- An Election Cycle
we have seen a significant slowdown, in Property Transactions.
Whilst this has impacted our market, it has also impacted the Bank’s, as their growth targets have fallen behind their plans. Currently I am seeing intense competition amongst bank’s for new business, with Discounting (Interest Rates and Professional Fee Contributions) to gain new business. A client commented to me that “every second add on Television was a Bank wanting you to Bank with them” which is a true indication of this intense competition.
Whilst Banking is not just about price, savings made in Interest increasing Disposable Income is a big consideration. Spring is not far away, and no doubt the Bank’s will be gearing up for their “Spring Home Loan Campaigns” with special offers and incentives.
Be aware if you are in the market for loans, you have many option, particularly in our current climate.
