Otago Property Investors Association Inc

03 477 6220

otago@nzpif.org.nz

News & Updates

Recent updates

07-06-2007

Rates fall, but its not the turning point

In the past week a number of home loan lenders have been dropping some of their fixed term rates however this shouldn't be seen as an ongoing trend.

Right now borrowers are suffering from three recent increases in the Official Cash Rate, which now sits at 8%, plus increasing wholesale rates, which are up between 80-100 basis points since the start of the year.

As noted before floating rates are now beyond the 10% mark, and it is the first time they have been in this territory since 1998.

With this sort of background any falls, no matter how small, will be most welcome to borrowers. However the news is not too good. Economists think the balance of risks is on the higher side and more OCR increases are likely this year. Or put another OCR falls are most unlikely.

With this in mind the best strategy is to go for fixed rates, rather than floating ones, and to pick a term which is going to get a borrower through the last of this upward rate cycle.

Also favouring this strategy is the fact that fixed rates are still considerably lower than floating.

In the past week the main changes seen to on the Good Returns mortgage rate table are some falls from mainstream banks - there has been next to no activity from non-bank lenders.

This action has seen most big banks drop their three year fixed rates by 15 basis points and four year rates by 5 points to 9%.
The trend for lower rates the longer one goes out the yield curve means that five year fixed rates are lower than something with a shorter term.

Not that long ago fixing for five years had some merit as it was around its historical levels, however now it doesn't look particularly attractive at nearly 9%.

The prevailing view is that rates won't fall significantly until sometime next year. Fixing for around two years appears to be the preferred strategy there are reasonable odds you will get a much better rate in 2009.

comments powered by Disqus