There’s a strong feeling among economic commentators that interest rates will rise soon.

 

The Reserve Bank has signalled that it will raise the official cash rate (OCR), which comes in response to New Zealand’s strong economy, low unemployment and unexpected inflation rate. The OCR is currently at an all-time low of 0.25%.

 

A higher OCR translates into higher home loan interest rates for borrowers. How much interest rates will increase by, and how quickly, is anyone’s guess – although some of the banks have already begun to lift their rates in anticipation.

 

What can you do plan ahead for higher home loan costs?

 

Review all your loans so you know where you stand. That way you can make a solid plan. It’s important to know the answers to questions like these:

 

• What loans do you have?
• How much is floating and how much is fixed?
• When do the fixed-term loans expire?
• What interest rates are you currently paying on your loans?

 

Consider your options

 

Restructuring your loans can reduce your mortgage payments or help you pay off your loans more quickly. You can also split up loans in order to balance out the ups and downs of the market. That means various loans roll over at different times, so you don’t get caught by all your debt rolling onto a much higher rate at some point in the future.

 

You might be surprised at the amount of flexibility that’s possible with your loans, especially if you have plenty of equity in your property. New borrowers can often negotiate preferential rates and sometimes cashback or gifts, too. A mortgage advisor can give you expert advice on the best structure for your situation.

 

Talk to us, your lender or your broker

 

We’re here to help, so if you’re worried about increasing home loan interest rates, get in touch and we can run you through some of your options. We can also recommend a mortgage advisor if you don’t already have a knowledgeable broker. Give us a call or drop us a note, we’d love to hear from you.

 

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We’ve been getting quite a few questions from our clients during lockdown (and the changing levels thereafter) about the responsibilities of employers. The Ministry for Business Innovation and Employment (MBIE) has been busy setting out all the information you need.

 

Two of the most commonly asked questions are:

 

1. Can I make employees take annual leave during lockdown?

 

The short answer here is no. You can talk to your employees and try to come to an agreement about how their annual leave might be applied during lockdown, but you can’t make them take annual leave starting immediately. The only time you can make an employee take annual leave is when an agreement cannot be reached about when the annual leave will be taken – and you must give them at least 14 days’ notice. Get all the details here.

 

2. Can I make employees take a pay cut during lockdown?

 

Again, the short answer is no. You can negotiate for a change in pay, hours or duties, but you need to reach an agreement with the employee. It must be set out in writing and the employee needs time to consider the new arrangement.

 

Remember, you can apply for the wage subsidy or other financial support if your business revenue is suffering under lockdown. Read more about your options here.

 

Where to find more information

 

The Employment website, provided by MBIE, lets you navigate all your responsibilities as an employer during lockdown. For instance:

 

• You can find out more about working at different lockdown levels here.
• There’s a page on financial support for businesses here.
• Information about vaccines and the workplace can be found here.

 

If you’re concerned about your business’s finances during this time, we can help you identify what help you might be entitled to and apply on your behalf, so give us a call – we’re here to help!

 

Earlier this year, the Government announced the removal of tax deductions on loan interest for rental properties. Previously, interest payments could be claimed as a business expense and taxed accordingly, giving property investment a tax advantage.

 

Now, properties bought from April 2021 onwards will not be able to claim any tax deductions for the interest paid on the mortgages. For all existing rental properties, including holiday home rentals, the tax deductibility is being phased out over four years.

 

Changes take effect from 1 October

 

Until October, the old 100% interest tax deductibility is in place. Then on 1 October this year, rental property tax deductibility reduces to 75%: you can still claim three-quarters of your interest payments as a business expense and get a tax advantage. The 75% rate remains in place until 31 March, 2023.

 

For the following financial year (1 April 2023 to 31 March 2024), you’ll be able to claim 50% of your interest payments as a business expense against your rental income. Then it drops to 25% for the next financial year (1 April 2024 to 31 March 2025). From 1 April 2025 onwards, no interest deductibility will be available. You can read more details here.

 

What should you do?

 

To assess how much impact this will have on your situation, we can calculate the difference this is likely to make to your overall gains or losses in the years ahead. Our forecasts will be a good guide, but the exact situation will vary depending on several other factors, too. For instance, as interest rate deductibility reduces, you may also find that rents increase to help you meet the higher costs. However, your mortgage interest payments may also go up, if (as seems likely), interest rates increase over that time.

 

Ideally, you should think carefully about your rental properties and whether they will still be fulfilling their role in your financial strategy. You might choose to keep them – switching from interest-only to principal-and-interest repayments could be a way to start reducing your interest costs over time. Or you could sell up and invest the proceeds somewhere else.

 

Talk to us to get a better understanding of what your position will be when these tax changes come into effect, so you can make smart decisions about your financial future.

 

Palmerston North