Interest Rates

[SwissKiwi]

Yes, all 7 bought over 2 years and 3 months after joining Ron's coaching programme. Actually I have bought 9 over the period, but I won't go there.

But that sounds like a particularly interesting bit!

[Perry]

Although a rural story, this may interest / intrigue PT Forumites.

'Bank Didn't Keep Up Their End'
by Jamie Ball of Straight Furrow

Anthony Vogels is a dairy farmer in the Waikato. He banked with
National for over 25 years and he purchased a new dairy farm in
February 2008 using a loan with a complex interest rate swaps.

At that time it was said to us that for swaps you had to have a $10
million debt. They had opened it up to farmers and they had reduced it
down to basically $3 million. So this was a thing that was opened up
to farmers with a lot of debt. In June 2008, we took over the new farm
and that's when we officially started with swaps.

By August they rang me to say that they wanted to come out for a
meeting, which I knew was very unusual because that's in the middle of
calving. They sat around the table and said that they were under
pressure and would have to increase the margin. Of course I wasn't too
keen but they said, 'Look, it has to be done.' They increased our
margin by 40 per cent.

Then they came back in November and said, 'Well, things are still
looking worse - we need to increase your margin again.' They wanted to
increase it by another 30 per cent. At that stage I said to them, 'Now
enough is enough. We're under financial pressure, because things are
affecting us as well. Now loyalty counts. I want you to leave it where
it is.' And they did - to my surprise.

I've had quite a few discussions with them since and from what I can
gather, they had a good indication of which farmers they could
approach to get an increase in the margins and they also knew which
farmers would just tell them 'Get stuffed' and show them the door. So
it was very inconsistent as to who got charged more and who didn't.

We were told that our swaps were being monitored by the experts. Well
when the recession started to really crunch there were times when you
were better off to pay the break fee and get out," Anthony said.

But after a while that door was shut, and they never ever rang us to
say that there was an opportunity there for us to get out of it." Was
the heat being put on by Anthony's bank manager or was he simply the
go-between?

I think he was simply the go- between. I had a five-year fixed rate
term with the swaps, and that was really crippling us... then I knew
that at one point there'd be the opportunity where another bank would
look at us. And that point came. Back in April of this year I
approached Rabobank and we've changed to them. We bit the bullet and
paid the break fee.

My loan under the swaps was actually $2 million originally at 9 per
cent. If you look at it in layman's terms, my interest rate was 8 per
cent. The bank's margin made it 9 per cent. Then they increased their
margin by 40 per cent, bringing me up to 9.4 per cent. And then they
were trying to bring it up to 9.7 per cent. Just that 40 per cent
increase cost us $32,000 over those four years." As Anthony suggests,
there's an uncanny coincidence in timing between the on-set of mass
sales of swaps to farmers and the on-set of the global financial crisis.

You've got to wonder that with all the analysts watching the markets,
right from the start did the bank know that the economy was starting
to go pear-shaped, and this locked a lot of people in to high interest
rates that they couldn't get out of?

But look, make no mistake: I did sign it. I did agree to it. But I
feel that the bank didn't keep up their end," Anthony said.

I am sure that some people must have got absolutely hammered by the
margin. Maybe they'll never get over it? Maybe they've had to sell up?
We were lucky in that we're a husband and wife team and we just
battled on. We got through. We've had to pay the penalty for the last
11 months. But we've changed banks now and we're going to move on
from it.

Even the penalty - that's not straight-forward either. That's a
formula all right but there are little bits in there that are to the
bank's discretion. So it's not very easy for anyone just to calculate
what the penalty is going to be." So, what is the penalty cost?

Well that seems to change too. You never get an exact answer from
them. I paid $80,000 to get out with 11 months remaining. I was
ringing them every month asking, 'What's the penalty now?'

What I'd like to see happen is to see to what extent the banks charged
some of the clients. Also, it would be good to see if the banks could
do what they did. You know maybe they could do what they did but,
ethically, should they have? Was it just another money-hungry way of
sucking more money out of their clients? It would be interesting to
know if the National Bank market share has taken a dive in the
rural sector."

[NovInvestor]

NovInvestor - I'm interested to know what was attracted you to a property with a 6.25% yield?

It's a 1 beddy unit 60-70m2 over two storeys, currently renting $340/wk (settle today, and tenant moving in today too).

I can convert it to two beddies, and increase the rent to $370/wk, hence yield will be higher.


To answer you question, no I don't buy in South Auckland, hence the yield.

It's about a balanced portfolio, and sometimes you have to sacrifice some yield with capital gain potential.

[NovInvestor]

But that sounds like a particularly interesting bit!

1 home, and 1 trade that paid of the debt I owed to the builder on other repairs/renos on other properties

[SwissKiwi]

Back to actual Interest Rates as this thread is called.

Westpac have come out with 5yrs @5.99% - could probably get them a bit lower too.

My crystal ball tells me that rate is going to look v cheap in 2/3 years time.

Could be more bank promos however - as its only early spring.

[NovInvestor]

Back to actual Interest Rates as this thread is called.

Westpac have come out with 5yrs @5.99% - could probably get them a bit lower too.

My crystal ball tells me that rate is going to look v cheap in 2/3 years time.

Could be more bank promos however - as its only early spring.

This reminds me of the people who have fixed at 6.5% in 2009, they all lost money then...

Anyways, this time round who knows what will happen...

I think between now and the next OCR increase, there will be more deals like this if not better.

[Wiz]

^ Agreed - and could be more to come if commentary on trying to 'manage' the value of the Kiwi $ to benefit exports (read: lower the OCR) is to be believed, and ever comes to fruition.

[Wayne]

they won't lower the OCR (not by any significant amount (.25 maybe but probably not)) - would push borrowing internally up for property.

[Austrokiwi]

Back to actual Interest Rates as this thread is called.

Westpac have come out with 5yrs @5.99% - could probably get them a bit lower too.

My crystal ball tells me that rate is going to look v cheap in 2/3 years time.

Could be more bank promos however - as its only early spring.

Its a possibility( higher interest rates in 2-3 years) but the opposite is also possible and IMHO a little more likely. Despite the Media giving the impression that the GFC is in the past I believe we are still right in the middle of the GFC. Where I live Vienna it is really noticeable that people are just not spending on consumables, some are definitely struggling. Friends are trying to sell an older car..... used to be not a problem but after 6 months they are finding no one is interested. Last week I decided to do a long over due Clean up of the Attic and basement ( had been put off for far too long) I was taking old clothes down to one of the charity bins. A guy saw me and asked if he could take the clothes ( this would have been unheard of 18months ago) I didn't really care who had the clothes so let him take them. Even the Gypsys have a different attitude. They drive past at least twice a week and in the past they had refused to take certain items we did't want....this time any metal including a huge heating oil tank were now very acceptable. People are saving rather than spending......the only sector that seems to be different is Residential property: with mortgage rates significantly below the official inflation rate those with the ability are putting their money in property either with PI or renovations. I am sure people have read that China's largest market is Europe with Europeans being more austere ( either by choice or enforced) China is finding less demand for its goods. There is real potential for this to go on for a great many years ( I suspect it won't really improve till 2020) that means that Central banks are going to find any hint of raising the base interest rates will cause more damage...so interest rates will continue at low levels....perhaps the ECB will end up actually setting a negative base interest rate trying to make banks invest else where.

[essence]

People are downsizing, saving, paying down their mortgages (those that can afford it).

This is stifling money movement. The Banks are getting keen (not yet desperate?) for new mortgages/client re-mortgaging but they're still not getting enough for future growth.

I'm picking that we could see a possible reduction in long term rates (4 and 5 years) by up another .5% (ie down to 4.95%). May be extremely lucky and get them lower, but that's all I'm picking at the moment.

We are in an extended period of low/no growth and this is going to continue until at least mid-2014.

The EU "situation" is not going to improve for a long time.

28/9/12 Kiwibank has cut its six month, one and two year rates to 4.99%. The bank requires 30% equity or more in the property to qualify for these rates. Maybe I'm a bit optimistic re the 4 & 5 year rates but let's wait and see. The mortgage market/rates are going to be interesting the next couple of months for two reasons a) ANZ re-branding and WILL lose a lot of National Bank customers, and b) the spring mortgage rate madness.

Rhetorical - I wonder if it's worth negotiating with my current bank to see if they'll reduce my Fixed Rates? Nah .... probably not.

[dandan]

http://www.interest.co.nz/news/61337...owing-kiwibank
ANZ and the National Bank have cut their six month and one year fixed home loan rates to 4.95%.
Kiwibank also cut its two year rate to 4.99%,
HSBC has set its 6 month Premier rate at 4.85%
SBS/HBS has its 6 month rate also at 4.99%.

[NovInvestor]

This is like May-June when you could get 4.6% for 1 year fixed all over again!

[Wayne]

I am so glad I have a number of mortgages at differant rates otherwise I would think I was really missing out on something. It would be like "who blinks first" if I had it all floating at the moment - deciding what to do and when to fix.

[NovInvestor]

I am so glad I have a number of mortgages at differant rates otherwise I would think I was really missing out on something. It would be like "who blinks first" if I had it all floating at the moment - deciding what to do and when to fix.

I was doing that too, but the floating rates are just too high, hence I have fixed in a range of 1 year, 18months, and 2 year rates now.

[Austrokiwi]

http://www.interest.co.nz/news/61337...owing-kiwibank
ANZ and the National Bank have cut their six month and one year fixed home loan rates to 4.95%.
Kiwibank also cut its two year rate to 4.99%,
HSBC has set its 6 month Premier rate at 4.85%
SBS/HBS has its 6 month rate also at 4.99%.

MMMMM I know the media has this down to a mortgage war following on from the demise of the national brand. With the rest of the worlds interest rates so much lower I wonder if NZ based banks have margins that allow for even more mortgage interest rate reductions. Ie: if they borrow in Europe at 1.65% pay hedging of 1% might they not be able to offer mortgage rates of 3.65%? Perhaps there may be more room for borrowers to push for even lower interest rates