Yeah, so for those who don't know me, I'm Matthew Dawe. I'm a mortgage broker and financial adviser. I'm accredited with 70 lenders in New Zealand, as well as all the major banks, so BNZ, ASB, Westpac, who's the other big one? ANZ, did I mention that? SBS, Cooperative, Kiwibank and there's about 60 others, all right? There's a massive non-banking industry out there. Yeah, we help clients get pre-approved, help them negotiate interest rates, and provide financial advice along the way.

So, a little bit about me, it's myself, and I've got a team of four helping me. I've been a financial adviser for 15 years, and a mortgage broker for seven years. I'm a bit of a markets guy, so I'm a bit of a nerd, and I'll try not to bore you, but before I was a mortgage broker, I was actually a foreign exchange dealer.

So, essentially, my job was to help corporates with their foreign exchange decisions, and most of our sort of counterparty banks were Citibank, Barclays, and UBS, is who we mainly dealt with. I've been a property investor for 20 years in New Zealand, and Australia. Love Ron's chat about Australia, I agree. So, in an increasingly confusing mortgage environment, we take the stress and confusion out of the mortgage process, and help you get approved, and help you get clarity, and move forward.

So, interest rates, yeah, what's going on, and where to from here? So, I just want to touch on, like, where we've been quickly, and you'll hear, like, some people talk about an oil tanker, you know, to describe the economy, or interest rates. I love that analogy. So, let's talk about this for a little bit. Anybody remember before, like, COVID, everyone was talking about deflation, and 0% interest rates. Does anybody remember that? I remember when the five-year fixed was 2.49%, right? And everyone was talking about lower rates. Everyone, including me, like, I thought rates are going to go lower. Like, in Europe, they actually had negative deposit rates. So, you had to pay to put your money in the bank. True story.

So, interest rates were zero, basically around the globe, right. So, that's where we were. Economic growth was actually okay around the world, not too bad. Pretty utopia, eh? Zero rates and good growth. So, what happened? COVID.

COVID happened. So, COVID was interesting, right? So, the whole economy basically shut down. Governments around the world panicked, right? Because if you could imagine, you can't trade, you can't do deals, you can't go to work, you can't buy the milk, right? So, it was scary. So, basically, governments panicked.

The Reserve Bank dropped the rates. The rates were really quite low, but they dropped them to zero, and they pumped in 80 billion bucks, right? Which is 30% of New Zealand's GDP and basically in a few months, right? The government also, as we know, increased their spending a lot to support businesses and individuals. We can talk about the politics of it, but basically, they increased their spending a lot, right.

Government spending on a 50-60% over the preceding year or two after that. So, what happened? You've got a huge increase in the money supply, right? Because everyone panicked, right?

Guess what happened?

The economy opened, and actually, like, everything went pretty well, actually. You know, people had money in their pockets. They hadn't been spending money for a period of time. Nobody's buying cars, going on holidays. So, what happened? There was a huge demand, right? That pumped up prices just when supply was really low. I was writing this, my notes here, and I was in the market for a jet ski at that time, which is quite interesting. Jet skis went up 30% to 40% because there's a whole bunch of middle-aged men and younger guys who, you know, want a jet ski, who, you know, haven't been on holiday, and, you know, and you couldn't get one. Like, in any one that you could get, there were multiple offers on it, right, and the jet ski guy, there's a place on the North Shore, the guy, he just has half control of the market. He said, I can't get anything. Like, they put in an order overseas for a new one. The factory's been shut for, like, six to eight months. So, he's just like, well, I'll get you one, but it's 10 grand more than the asking price. Do you want to do it?

Everybody remember used cars around that time?

Like, two, three-year-old used cars actually were more expensive than a new one, because the demand's so high and supply's so low. So, up went inflation, right? So, there's a lot of money and a lot of demand chasing very small, you know, amount of goods.

So, inflation went to 7%, right? Straight away. How did the Reserve Bank react, right? So, the economy, the oil tankers just being like, the oil tanker essentially stopped during COVID, right? They put their foot jammed on the accelerator. They put four tugboats out the back of it, going full steam to try and get the thing moving, right? But actually, the tanker was going pretty good anyway. So, put the whole thing to hyperdrive, right? Inflation went through the roof. So, what did the Reserve Bank do? The reserve bank basically jackknifed the rates upwards after that, right? And we went from zero to five and a half, basically, within 12 months after that. Why? Because inflation was really high, demand was too high. Don't forget, the borders were still semi-closed. It was difficult to get labour. I mean, unemployment was 2%, I think, or whatever it was, right? So, labour costs went up. That's when everyone was asking for pay rises, right? Because your boss couldn't get a replacement. Bad luck. Give us 10 grand rise or I'm going to go somewhere else. So, you've got this sort of spiral. So, it was kind of scary because I remember sitting at my desk in late 2021 and the rates just kept going up and up and up and up and up and up. It's like watching a train in the distance. That's accelerating and you're like, you want to slow down and you want to keep it at the distance, but it's scary, right? Because what I was thinking while I was watching that was like, this is going to be a disaster in like a year or 18 months time. I hope they release the pressure a little bit, right? And just bring the train into the station, let the oil tanker gonna slow down gently. No, they just kept the rates like eye-wateringly high for a period of time.

So, what did the Reserve Bank do? That oil tanker that's moving really fast, they put the tugboats with a massive rope on them, right? And put the tugboats in reverse, right? The operator of the oil tanker cut the engines and put the engine in reverse. The tank is steaming along, right? And basically everything's just trying to pull it backwards, right? So, what did the Reserve Bank do? So, the oil tanker's beginning to slow down, right? What did they do? They just kept the pressure on, right? Like they just really rammed it home. And obviously, the thing that I thought was really stupid is the Reserve Bank thought it wasn't working, but it was, right? A little bit. You could kind of see it working. They came out and said, we want a recession to happen. That was insane, right? If you had no money in your pocket beforehand, you certainly didn't have any money after that. So, they're so fixated on this, you know, stopping it. So, basically, we've had a recession and we had no economic growth in New Zealand for 18 months, right? Wages were up 20. I like what Ron said, because wages are up 25 to 30 percent since COVID, by the way. And more house prices have gone down. So, rents are up a lot as well. I know they've cooled a little bit now, but rents have also gone up a lot since COVID as well. Unemployment started to trickle up as well. Now, we're at 5.3% or something like that. Talking about businesses, unemployment is kind of like the last thing to go up, right? So, if you're a business and you've got skilled people, the last thing you want to do is to let go of your skilled people. So, you'll hang on to them for as long as you can. Then when sales get to a point, your margins are crushed, the economy is so bad, you have to let someone go. You'll do it, right? But usually, you try and hang on. So, unemployment is the last domino in the cycle, literally the last domino, and it's still going up at the moment.

So, what's happened since then that all tankers come to almost a halt, and Reserve Bank goes, oh, that's a surprise. Nine interest rate cuts in a row, right?

Why?

Because they're late, because here we go again. And my opinion on this is quite interesting. I think the same thing's happened for like 50 years. It's just like a New Zealand thing. They tend to be like really late and really slow. I don't know why, or maybe like the economy reacts faster because we're a little place or something. I have no idea, but either way, I thought they were really, really late, and it caused a big problem. So, yeah, nine interest rate cuts in a row. A retail interest rate peaked at 7.25%. So, if you wanted a one-year fix from your bank about 15 months ago, it was 7.25. Now, it's 4.49. Okay, so nine cuts in a row. So, how's the oil tanker kind of doing now? Well, now inflation's come down to 3%, which is really good, and we can talk about this more. So, economic growth's still average. The last report by the Reserve Bank, what they said was inflation's 3.1%. It's gone up a little bit, which is kind of scary. Why is it going up? The economy's rubbish, right? And the reason is rates and insurance, right? So, if you're Auckland Council, you've had a huge increase in costs, right? That takes a little while to kind of feed through, right? So, what the Reserve Bank said was out of that 3.1%, he reckons majority of it is rates and insurance.

Has anyone got an insurance renewal on their homes recently? I got mine this week. My premiums went down, which was pretty cool. That was with Tower. I was shocked. I was like, how in the world did my insurance premiums go down? That is weird. Like, it's been, the last five years, it's been 10, 5, 5, 10, 15, you know? So, I was like, oh yes, because I was worried, you know, getting prepared for like the punch in your guts, got another massive increase. But my premiums went down. My sum insured went up, so the, you know, how the inflation costs, the cost of rebuild. So, the sum insured actually went up, but my premiums went down, which was pretty cool. A few properties, some of them went up a little bit, some of them went down, but overall it went down, which was pretty cool.

Rates, yeah, rates have gone up a little bit, but still probably we're getting to the natural end of that sort of cycle. There's a lot of political pressure on the Auckland Council, you know, things like that. So, that's what the Reserve Bank's saying. They're saying it's 3.1%, but we expect it to go to two and a half. So, the Reserve Bank's expecting inflation to drop moving forward. I agree with that. That's my opinion.

Now, one thing I wanted to touch on, Ron kind of touched on a little bit, is anybody notice the interest rates went up just before Christmas? That was insane. I couldn't believe that. So, here's what the Reserve Bank did before Christmas, right? They cut the rate 0.25%, then they said no more cuts. That was insane. Why would you do that? Like some of these guys, you wonder if they've been in a bank, a trading bank before? So, I'll put this example to you. Say I'm a police pension fund in New York, and I manage the superannuation fund on behalf of police officers in New York, right? It's a big fund, and I'm thinking, okay, I'm going to put a little bit of money into a New Zealand bank so they can lend it out to the real estate market.

When you hear that, what do you think happens?

I want a bigger return on my money, because if I'm going to give this money to a bank for three years, because I'm a police pension fund to fund three-year mortgages, I guess I'm thinking, okay, rates are going to be higher in three years, right? Probably, if I'm lending my money out. So, I've got the rates straight away. That was insane. So, they cut the rate, but the wholesale rate went up. Has anybody been in good positions about that? Because of what they said, right? That was a mistake that they made. What they should have done was cut the rate and said nothing, right? So, the thing is Anna Brennan, you know, the new RBNZ governor, she got sworn in a week later, right? And she came out with a special press conference two days after she got sworn in and tried to reverse some of the damage done by some moron who's probably got 30 years experience, but no markets experience. He should have just cut and said nothing or said very little, being very careful with his words, and the swap rate went down a little bit. I don't know what you guys think. I think that one comment knocked half a percent off economic growth in New Zealand for the next 12 months, because I don't know how you guys felt. I felt really good going into Christmas. I felt next year's going to be awesome, and then you just get this sucker punch. Then all the newspapers blow up, right? Rates are going to go up, property's not going to be what it is, right? Because of that one comment. I thought that was insane. Why did they want to do that? The Reserve Bank wanted to improve the economy, right? Moving forward, but through stupidity, they put a damage cushion on the economy.

Anyway, so that's what happened, right? So, the rate went up a little bit, especially the longer-term rates just before Christmas, and they've since come down. So, the latest report by the Reserve Bank was last week. They kept rates on hold, and what did Anna Bremen do. We don't know, and she came out and said, we don't know what's going to happen moving forward, okay?

She didn't make a stupid mistake by saying we're going to jack the rates. She just said, we're keeping rates where they are, we expect the inflation to fall, and we are not, we don't know. In fact, you look at the, I've studied this before, there's a nerd coming in. You study the report, it says, because in financial markets, you're taught to study the exact words, right? And she said, for the foreseeable future, we are not touching the rates, right? Why? Because the moment she changes one of those words on the police pension fund, I've got the rates, I've got interest rates down the economic activity, right? So, she said that, which is really smart. She kept the pressure off the rates, which was good. On the back of that, the wholesale rate dropped, ASB dropped their two-year rate, Westpac dropped their three-year rate, BNZ dropped their other rate, yeah, long story short. But basically, all the swap rates come down a little bit, two of them, what they were before Christmas. But the damage has been done, in my opinion. I don't know how you guys are feeling, but like, I thought that was, because all the newspapers want to start talking about that sort of stuff.

So, anyway, a little bit more sensibility in the Reserve Bank, which is good. So, to give you an idea of the rates now, a six-month rate is about 4.45%, 4.45%. For a six-month, they've gone down in the last two or three months. One year is about 4.49% at the moment. So, 4.45% for six months, 4.49% for a year. Eighteen months, you come up a little bit to like 4.6%. A two-year is 4.69%. Okay, it was 4.9% before the last Reserve Bank announcement. So, that's how something that they say and not say affect the rates, yeah. So, 4.69% for two years. Three years, about 5%. Westpac's got the market leading at the moment. I expect them to change, but yeah, 4.99% from Westpac for three years, pretty cool.

Not financial advice, by the way. All of this, just, yep, meeting my obligations there. Four-year is about sort of 5.2% to 5.3% in that 5.1% to 5.3% four-year. And five years, about 5.5%. Some banks are off slightly below that. So, you've got a one-year at 4.49% and a five-year at 5.5%. Okay, that's roughly where the rates are now. Nine cuts in a row, okay, as I mentioned.

So, projections, this is what you're all interested in, probably. Yeah, projections, this is the interesting bit. So, a few things on this, right? If a one-year is 4.49% and a five-year is 5.5%, right, you're going to pay 1% more every day to figure out if you're right or not. You know, calculations in my go, okay, 4.4% is available, 4.49% is available now, so you've got that option. The other option, let's just say the most extreme, is 5.5%. So, you're going to voluntarily pay 1% more every day to figure out if you're right or not. So, what does the rate have to be to break even on that theory? Another 1% higher, right? So, you're paying 1%, does that make sense? So, let's just say 4.5% and 5.5%, well, the break-even rate is 6.5%, which is another percent, because you're making a loss every day to then try and make it up for the loss. So, say if I'm paying 1% more for 18 months, right, and then I'm making a profit versus the one year I could have got, but I'm still, you know, you've got to make up for the losses, all right? So, your break-even point is 6.5%, which is eight interest rate rises, reversing the entire nine cuts we've had. Meanwhile, the oil tank is not even moving, by the way. They've just wrecked it. They've punched it in the face so much, this won't even move. Trying to get it going as long as I stop making mistakes.

So, anyway, as you can tell, I don't like long-term rates, if you haven't figured out from that conversation. New Zealand's too small, right? It's too expensive. Like the US, you can borrow 30-year money at like 6%, right? New Zealand is just too small. It's too expensive, right? And like I always use this analogy, and someone will check the maths on this, but if you've chosen a five-year rate one year in the middle of the year every year for the last 20 years, you'd be wrong in 17 of them. In other words, you would have paid more. Why? Because you're paying a 1% penalty every day to figure out if you're right or not. You've got to do what's right for you, though. Protection's good. You've got to spread your risks and make sure you're, you know, we don't know what's going to happen. But by the way, the years that they were right was COVID. And I had out of 180 clients, I had one guy fixed for five years. I tried to talk him out of it. How stupid was I? So, the answer is nobody knows what rates are going to do moving forward. So, what does it feel like now, right? We know that all tankers, you know, being in the ring with Mike Tyson, it's bruised, it's battered, it's not moving, right? The tugboats have come off, right? The Reserve Bank's trying to put the accelerator on, right? So, the propellers are turning, but the tank is still pretty, I don't know how you guys feel, but it seems as though the tank is really not moving, you know, like it's maybe moving a little bit. And people go, oh, it's going to be roaring in like six months. Like, really? I hope, I hope, but we don't know. But that's sort of what it feels like. It feels like, as a consumer, it's interesting listening to the questions tonight, because I think that's a general feel of the market. Like people are feeling beaten up, interest rates are being high, cost of living is being high, you know, rates, fuel, insurance. My wife reminds me of how much everything's gone up, you know, utilities, you know, so everyone's really beaten up, you know? So, I think everyone's pretty cautious. So, you think about that momentum is pretty lethargic, let's say.

So, that's my opinion on it. My gut feel is it's going to be another rate cut. I'm just going to put it out there. That's not financial advice and I could be wrong. I just get that feeling, right? Like it's not, we were having the exact same conversation a year ago with clients, right? And I remember it was like someone in the bank came out with like a 5.99 for five years. And have my phone went crazy. Oh, Matt, I'll take the rates, I't's going to go up next year. I'm like, last time I checked, we're in the session.

And you know what I mean? Like rates are pretty high still. So, I think it's better now, but it's still a sort of similar lethargic thing. I could be completely wrong about that, but I just feel like if the economy does not recover this year. P.S. election, bad weather, winter coming, everyone feeling like annoyed under pressure, like cautious. I just get that feeling they're going to have to go again. Like I could be wrong about that, but that's just the feeling I get. And everyone's talking about the rates going up. What the heck is that about? The Reserve Bank, right? Being, not thinking about what they're doing. So, not that I'm at the Reserve Bank or have their pay grade from a little mortgage-broking company in Auckland, but yeah, the other thing I was sort of going to mention was, you know how we talked about the Reserve Bank overcompensating? You know, when things were going really well, their tanker was really slowing down. They had all four tugboats pulling in the opposite direction and the engine in reverse. Guess what's going to happen this time? Guess they're going to do the same thing, right? They've done that same thing, I just think, every decade for like six decades in a row, right? So, they're going to go too far and they're going to cut the rates too far, right? But we don't know where that is, but I feel like they might panic. If we might get more cuts, I don't know, you know, because if it doesn't go, don't forget, they can't really make a decision two months before the election because they don't want to appear political, right? So, that eliminates, whenever the election, that eliminates September. We've got no, so we've got five months basically. So, if the economy does not recover, they might go, we need to go now because we can't go in six months in winter maybe. Yeah, you know, it's interesting reading the newspapers because last time I checked, whatever is expected never really ever eventuates, you know, because that's called a perfect market in your training, when you do your degree and all the rest of it, they say about, you know, a perfect market is impossible.

Perfect market is everybody expecting the same thing and that thing eventuating, right? That's what a perfect market is. It's impossible, right? So, the answer is nobody knows what's going to happen, but whenever I read the news, it's kind of like, oh, I'm going to expect the opposite because that's what usually what happens. Yeah, so that's my two sense on it.

Yeah, I'm offering free strategy session or strategy reviews where you can discuss your situation and get your questions answered, get some advice, feedback. If you're interested in that, you can just go to my website here and we've got a contact book page. You can just book a time instantly that suits you. That's it.

Questions? We've got time for questions.

Yes, sir. Good looking man in the back.

Where can we find out what the swap rates are?

Yeah, from my trading days, we used to have what's called a Bloomberg Terminal. It's two grand a month though, and there would be instantly available to all traders and dealers. The answer is the only available three, I'm going to give you two websites. Obviously, you've got the swap rate on the intrastocker.nz website, but it's not second by second and it's a bit delayed and it's hard to kind of work out. The answer is you need to have a Bloomberg Terminal. You wonder why he's a billionaire because all banks, all traders, all dealers use Bloomberg throughout the entire planet. Not many people know that because it's kind of behind the scenes.

The other one I've mentioned to you is called Forex Factory. If you're interested in Forex Factory, go to the calendar and it will tell you what's expected and then it gives you all economic data daily by the second for free. This is my nerd in me coming out. You can check what's expected and then you can gauge to get a feeling of not only the New Zealand economy, but the US, Europe, Australia, etc. You can kind of get a feel.

If you guys are in my private client group, I put screenshots of graphs up on there. Those are the two websites I'd give you. Without paying two grand a month, you're not going to know unless you've got a mate who's a trader at a bank. I'm not talking New Zealand banks. I'm talking about large global industrial commercial banks, not little, they're big retail banks. Retail banks in New Zealand, it's a different industry. Hopefully, that's helpful.

I've tried to read what Australia is doing, because generally they're about three to six months ahead of New Zealanders. How does that, in your mind, New Zealand being following Australia or has it been up and down?

Yeah, I find it fascinating what happens in Australia. So in Australia, you know that oil tanker scenario where we just made the tanker stop? They didn't make it stop. They pulled pretty hard but then kind of released the pressure a little bit, but smarter. It doesn't always work. The Australians aren't really, it doesn't always happen. But in this case, they did. Their economy wasn't as affected as ours. The more recent ones is their inflation is 3.8% to 3.9%. They've had one rate rise, they're going to get another one and probably another one. P.S., the floating rate in Australia is about 5.2%. They float, they don't fix.

Think of New Zealand's 4.5%. They're 5.2% to 5.3%. So their rates are already three quarters of a percent higher than ours and they're going to get another rate increase and probably another one. So meanwhile, house prices have gone up a lot. P.S., I love what you said, Ron, because I've got properties in Australia. Stamp duty, land tax, estate tax, top personal tax rates, 45%. Guess what happens? The economy is going to go like this. So Australia is going to slow down. We're going to speed up. All those people that think they left, I don't know how many people are going to come back.

I've read statistics like 50% of people come back or 70%. So it's just going to, you know, we've got that, it's going to come and that's going to add to the demand. And like, yeah, so that's my opinion on Australia. Taxes are unbelievable. Has anybody got like, it's unbelievable over there, the taxes, like. Yeah.

This is a review of the 1980s.

Is it?

Glass is weirder, Australia between pretty much 80 to 83, 84. A lot of people come back, 80% is a safe place.

Yes. What's the latest thing the Australian government's putting through theparliament? The capital gains tax discount. So if you keep a property more than a year, you get a 50% discount. The government's got no money, right? So what are they doing? Labour government is going to get rid of the capital gains tax discount. So if I sold a property in Australia, I'm going to pay it my marginal tax rate for that year, no discount. So if you make 500K, you're paying 45%, well, top tax bracket, they'll scale it, that's going to happen to every single Australian or every single investor in the entire country. That's even before you talk about land tax. P.S. Victoria's bringing in land tax. The state government's not broke, but 50% of state revenue comes from property taxes.

In New Zealand, no stamp duty, no capital gains tax, no estate tax and no land tax. Oh, but I pay $2 a litre for fuel. Oh my God. Yeah, it's unbelievable. But yeah, but Australia is going to slow down. Their growth is already under 2%, ours is probably 1%. We're going to go to 3%, they'll go to 1% probably. I don't know, just if they're going to get rate rises. So yeah.

Matthew Dawe‍
Mortgage Broker | Financial Adviser‍
Phone: 027 321 4287‍
Email: mortgages@matthewdawe.com
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