The past quarter has seen inflation rise to its highest rate since June 1987 to 4.9% (NB excluding quarters impacted by increases to GST rates). The main drivers were housing related costs, such as construction of new houses, local rates, supply chain issues as well as a shortage of labour.
Vegetables have risen 19%, transport 4.2% and petrol prices are up 24% this year, the highest increase since 2008! So now the Reserve Bank have stepped in, and we are now seeing the OCR increasing, meaning interest rates have risen quickly and are likely to keep going.
If you have entered the housing market in the last 7 years this will be the first time you have seen an increase in rates. Rises in a borrower’s overall borrowing rate by 1.5%, would mean additional interest costs of $1,500 a year for every $100,000 they owed to the bank. For those on an average gross household income of $110,000 and owe $550,000 a rise of 1.5% on their borrowing costs implies an extra home loan interest cost of $8,250 per year or $158/week. With interest rates and other living costs increasing at a faster rate than many incomes your weekly surpluses are likely to be reducing.
Compounded on top of all that, there are new rules that are coming into effect 1 December 2021 for lending. These new regulations require lenders to do the following before agreeing to lend money to a borrower (or agreeing to lend more money under an existing loan):
What this all means…..
This means banks are going to be scrutinising you’re spending even more. It is going to take longer to pay your mortgage off and to get ahead faster. On average, kiwi’s fritter 15% of their take home pay on things that don’t make them any happier. But households can always find savings. The easiest place to find any savings is food and drink. Eating at home instead of eating out can save households money, and that can add up fast. The next place to find it is in your mortgage structure and insurances. But the question that is always asked is how I go about all of this? The best thing to do is seek advice, make a plan and have accountability around achieving that plan.
It's not too late to make the most of 2021. If you want to be mortgage free faster, grow wealth while still enjoying life contact www.enable.me and book a consultation before 15th December with the Southland Office to receive a discounted consultation rate of $100+GST normally $350+GST.
Written by Sarah Valli