Interest Rates

[Meehole]

Well according to my source overseas the world is a mess. Unemployment is rife and for this reason there will be stuff all pay rises. Better to be an employer than an employee going forward.
Even self employed is better than being an employee.
The Reserve bank was foolish interfering with the US dollar and it will probably settle at around low 70's.
The advice I have been given is to fix, the advice I was given 12 months ago was to sell the rentals and invest the money in the business.
Have I taken heed? Not yet.

[mrsaneperson]

I see 3 major things holding the interest rates back to their present levels.

1.Worldwide NZ has some of the highest lending rates when compared to the USA, UK & China. ie USA a few months back was 3% ,presently UK is 1.84% FIXED until oct 2016 [Chelsea Building Society, HSBC similar deal at 1.49%]http://www.money.co.uk/mortgages.htm

2. If the interest rate goes up by say another 1% many property investors are sailing so close to the wind they're likely to fall over. This would bring condemnation against the government & fallout across all sectors including rental accomodation which would have to increase substantially.

3. If lending rates go up then savings deposit rates go up to. This will lead to more speculation by foreign investors. A topic hotly debated.

[Maccachic]

2. really? where do you get theses stats from?

[Wayne]

2. If the interest rate goes up by say another 1% many property investors are sailing so close to the wind they're likely to fall over. This would bring condemnation against the government & fallout across all sectors including rental accomodation which would have to increase substantially.

3. If lending rates go up then savings deposit rates go up to. This will lead to more speculation by foreign investors. A topic hotly debated.

Issue 2 will have no bearing on what the interest rates do.
Long term rates are determined overseas and they don't care about NZ 'issues' (except in determining the risk margin).

Issue 3 is generally the other way around - deposit rates drive lending rates. Comes down to peoples expectations and the banks need for money. Sometimes they have to pay more to get people to save - if they have to pay more they have to charge more to lend it out.

[mrsaneperson]

2. really? where do you get theses stats from?

Im basing it on an average housing loan of 500k .With a 1% increase this would cost 5k per annum in interest. Roughly $100 per week. $400 per month. Some property investors dont have room to afford that extra $100 per week especially if they have more than the 1 house with a mortgage around 500k.
They would have to raise rents by a similar amount which would create mayhem. Tenants would not be able to afford such an increase. Landlord would mostly have to bear the loss of interest and pay or go under.

This is based on conservative increases of 1% on 500k . The game gets much worse at 2% etc.

Thats why the govt has to rein the whole thing in & keep the interest rates at the same level or lower.There will be too much fallout otherwise.

[Maccachic]

Im basing it on an average housing loan of 500k .With a 1% increase this would cost 5k per annum in interest. Roughly $100 per week. $400 per month. Some property investors dont have room to afford that extra $100 per week especially if they have more than the 1 house with a mortgage around 500k.
They would have to raise rents by a similar amount which would create mayhem. Tenants would not be able to afford such an increase. Landlord would mostly have to bear the loss of interest and pay or go under.

This is based on conservative increases of 1% on 500k . The game gets much worse at 2% etc.

Thats why the govt has to rein the whole thing in & keep the interest rates at the same level or lower.There will be too much fallout otherwise.

Avg rental at $500k? really? Wasn't that long ago I was fixed on 9.2% for 2 years how many foreclosures were there then, how many homeless due to increase in rents?

[mortgage broker]

In the past house prices have been up when rates are up allowing some time to offload if repayments get difficult. This upswing in the market might be a little different with all the new tools which the reserve bank have legislated now. few articles I have written about possible upcoming changes http://www.mortgagesonline.co.nz/blog/?s=reserve+bank

[speights boy]

Landlord would mostly have to bear the loss of interest and pay or go under.

If someone has too much rental debt they will have to sell.
If they are nervous they should sell now, and not leave the situation to deteriorate.
They have miscalculated their business model.

An average rental mortgage of $500k.
I simply do not believe that.

Sell either to another investor who needs less debt or to an owner occupier.
Happens every cycle ....a transfer of wealth from the over indebted to the cash rich.
It certainly does not require Govt intervention at the RBNZ.

[Meehole]

$500k! I would have more things to worry about, like shingles, loss of hair from stress, no fingernails, no life from topping up the mortgage if I had that much debt on one property.

[mrsaneperson]

I doubt if a 500k mortgage on one property would be anything unusual for a property investor.

Not a good investment in rental return admittedly but many are in it for capital gain instead.

The average Auckland house price, 3 bedroom for a reasonable area say, East Auckland is 650k.Often for a house on half section around 400M squared.

[mrsaneperson]

$500k! I would have more things to worry about, like shingles, loss of hair from stress, no fingernails, no life from topping up the mortgage if I had that much debt on one property.

I agree with that . But many have not followed the same ideal and are sailing perilously close to the wind.

[speights boy]

Not a good investment in rental return admittedly but many are in it for capital gain instead.

Thats why the govt has to rein the whole thing in & keep the interest rates at the same level or lower.There will be too much fallout otherwise.

You want the Govt to intervene with the RBNZ in order to bail out speculators !
Madness.

[mrsaneperson]

No. But the other side of the coin will be much worse.

[speights boy]

No.

So you've changed your mind about Govt intervention.....well, that's a good start.

But the other side of the coin will be much worse.

The property is sold to an investor or an owner occupier.
Why is that "much worse" ?

[mrsaneperson]

I think the whole financial system as we know it has already collapsed but lets just keep pretending it hasn't. Im guessing NZ govt want to keep up with the pretence at least for the meantime. .

USA for example is a bankrupt economy ,its just a short matter of time before the reality will sink in and the whole system will collapse.When i was travelling last year in the USA ,Obama had closed down all the State attractions ie Statue of Liberty ,Grand Canyon etc. They said they couldnt afford to keep those attractions open anymore & still pay the staff because their national debt is in the trillions. They laid 1000's of workers off ,only to reinstate them a few days later when they realised it cost more to lay them off than retain them.

Its not just America but many other countries are financially kaput.