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Home Loan Advocate

What is the Official Cash Rates (OCR) and how it influences the interest rate–  Data collected from New Zealand Reserve Bank Web)
What is OCR Rates - Is an interest rate set by the Reserve Bank.  This is a wholesale price that is used for borrowing or lending money in New Zealand. It allows the Reserve Bank to meet its primary goal of ensuring price stability for New Zealand. The OCR was introduced in March 1999 and is reviewed eight times a year by the Bank. Monetary Policy Statements are issued with the OCR on four of those occasions. Unscheduled adjustments to the OCR may occur at other times in response to unexpected or sudden developments, but to date this has occurred only once, following the 11 September 2001 attacks on the World Trade Centre in New York.
Now let’s see how the OCR works-
Most registered banks hold settlement accounts at the Reserve Bank, which are used to settle obligations with each other at the end of the day. For example, if you write out a cheque or make an EFTPOS payment, the money is paid by your bank to the bank of the recipient. Many hundreds of thousands of such transactions are made every day. The Bank pays interest on settlement account balances, and charges interest on overnight borrowing, at rates related to the OCR. These rates are reviewed from time to time, as is the OCR. 
As a result, market interest rates are generally held around the Reserve Bank’s OCR level, when market interest rates increase, people are inclined to spend less on goods and services. This is because their savings get a higher rate of interest and there is an incentive to save; and conversely, people with mortgages and other loans may experience higher interest payments.
When people save more or spend less, there is less pressure on prices to rise, and therefore inflation pressures tend to reduce. Although the OCR influences New Zealand’s market interest rates, it is not the only factor doing so. Market interest rates – particularly for longer terms – are also affected by the interest rates prevailing offshore since New Zealand financial institutions are net borrowers in overseas financial markets. Movements in overseas rates can lead to changes in interest rates even if the OCR has not changed.

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What is Changing in regards to property investment lending
Most banks are making changes to the pre-approval offers for property investment lending in Auckland. For properties that fit the two criteria below, all new pre-approvals will only be valid until 30 September 2015: 
• Any of the security properties in the application are for residential investment properties in the greater Auckland Council area, as defined by post code, and
• The customers’ total Home loan Lending Value Ratio (HLVR) is >70%
If your customer is able to it to a draw down date by 30 September 2015 they can proceed to draw down as usual. This means that loan documents must have been sent to the customer’s solicitor prior to 30 September 2015.
This will only impact a small proportion of our total lending flows and all banks will be making similar changes, with some already having moved. We are committed to continuing the improved results in mortgage lending seen over May and June and delivering on our regulatory obligations.
Why is this changing?
The RBNZ has proposed new regulations to commence on 1 October 2015 to help slow growth in the Auckland property market. Part of the new regulation require all banks to restrict lending for property investment purposes in Auckland to a maximum Home Loan LVR of 70%.
While these changes are still under consultation by the RBNZ, in order to ensure we can meet the restrictions by 1 October 2015 we need to reduce our pre-approval time frame for any lending that fits the criteria of the proposed restrictions.
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