Always get clients to plan for higher interest rates – adviser

With an August OCR cut looking ‘almost certain’ and rate wars between banks showing no signs of abating, borrowers will be waiting in anticipation for historically low mortgage rates to fall even further. However, according to one mortgage specialist, a low-rate environment by no means guarantees a low rate for every first-home buyer – something advisers will need to remind clients eager to take advantage of the low-interest environment.

“The first thing first-home buyers will usually ask me is “What interest rates can I get?”” Smarter Mortgage Lady Rachael Thompson at Insurance & Lending Group told NZ Adviser.

“You have some great interest rates on the market – 3.79% with ANZ, ASB, BNZ, etc. But the reality is that if their deposit is less than 20%, then they likely won’t be able to get those rates.”

“First-home buyers usually want to know three things: how much they can borrow, how much it’s going to cost and what the repayments are going to be, and how long it’s going to take to get an approval,” she explained.

“When calculating repayments, I don’t work on 3.79% - I work on 5%. With a low equity margin, that is likely the interest rate that the first-home buyer is going to get.”

When it comes to interest rates, Thompson says there is one piece of advice that she gives to all of her clients – rates are irrelevant, until you have actually purchased a property. Despite the excellent borrowing environment we’re currently sitting on, the interest rates of tomorrow may be very different to the interest rates of today, and that is a scenario every client should be planning for.

“I’ve been in this industry as a broker for six years and an investor for 20 years, and I don’t remember the last time that banks had interest rates of 3.79%,” Thompson said.

“When I started six years ago it was 7.25% for five years, and I personally did a year at 9.25% around ten years ago. So I do have to temper the idea that it’s all about the interest rate.”

“The environment also makes some people feel that they can do something now where they haven’t been able to in the past,” she added. “But I always talk about what would happen if rates did go up by 0.5%, or by 1%, and being able to plan for that. I have experienced that scenario, and it can be quite painful if you’re not prepared.”