Interest Rates

[Asterix]

Looks to me like a revenue grab by the banks. A sharp rise in the longer term rates did exactly what they hoped and caused a rush to fix at those terms. Everyone rushed in believing the twin threats of expensive off-shore money and higher demand for long term funds meant we had missed the bottom.

It seems given that we will see further OCR drops and very likely Bollard will continue to hammer away at the banks. Wouldn't be surprised to see longer terms come back down well into the 6's. The banks may even have to squeeze margins to do it, but it won't matter because they just locked in plenty of high margin lending for 5 years.

[Austrokiwi]

Hey Austro

Do you know how much financing of east European countries has been done by the more well heeled European banking community?

Heard tell that those banks who have lent money especially to the newer EEC countries are becoming quite worried.

I posted some time ago the problems they/we face..............I won't repeat what I posted then..............but it is looking very scarey.............I can recall when nearly every bank including the Austrian Post Office was advertising risk free investments in Eastern Europe........... Our accounts are with Bank Austria, part of the Unicredit group. They have been in talks with both the Austrian and Italian Governments over the last few months.........supposedly to prepare for a possible bail out............... The problem here is there is limited transparancy in the financial markets here.........So even if the problem is mild people will respond as if it is much worse!!!

If there is a big problem...........I would suspect that a second credit crunch will hit.......or is it the current one will just get worse? IMHO New Zealand would be effected, as banks become even less inclined/able to lend internationally.

[whitt]

The rates bank use to borrow for long term funding dropped slightly.
Does this mean they will drop the 4 and 5 year terms by 0.1% also?

[Gibber]

Perhaps this from John Clarke and Bryan Dawe on Banks & Interest Rates may help explain should the banks not pass on an April interest rate cut

[tpr2]

very funny

[muppet]

KiwiBank have dropped two rates for tomorrow.

6mths to 5.79%
2yr rates to 6.09%

http://www.interest.co.nz/mortgages.asp

[OllyN]

The bitten bite back.

Govt considers banning bank 'exit fees'
Updated: 06:26, Sunday April 19, 2009

New laws are being considered to ban exit fees at Australian banks to make it easier for borrowers to switch lenders.

The Sunday Telegraph says the Rudd government is preparing the legislation, after growing public discontent over the failure of banks to pass on official interest rate cuts.

Assistant Treasurer Chris Bowen is drafting the new laws that would also ban service fees, default fees and penalty fees.

The bill is expected to enter parliament in June.



As most our banks are Australian we will no doubt benefit --and not before time !! The current situation is a scandal.

[tpr2]

Exit fees may be banned over there but break costs will still be calculated.

I doubt the banks will go down without a fight over break fee's. Legitimate ones.

[whitt]

Cut fees in one area and they will add stealth fees elsewhere or raise other existing charges.
Maths 101

[Badger]

Govt considers banning bank 'exit fees'
Updated: 06:26, Sunday April 19, 2009
As most our banks are Australian we will no doubt benefit --and not before time !! The current situation is a scandal.

Why and how will we benefit? Surely if real estate was such a winner at 7-10% interest, lower rates are not required!

Scandel who for? A scandel against savers perhaps, thats where the real capital for loans come from!

Low interest rates distort business and kill fixed income groups. Are you willing to pick the tab up on those groups by way of more taxes for a group of people who did the right financial moves?

Or support a bloated housing bubble bought about by lax credit and inventive loans that will deflate regardless?

[Dunning]

As most our banks are Australian we will no doubt benefit --and not before time !! The current situation is a scandal.

Why would the Australian banks operating in NZ change policy in NZ if they don't have to? Just because they have to conform to rules over the Tasman doesn't mean that they will bring the same rules in over here. As long as the NZ government allows service fees, default fees and penalty fees banks, regardless of owners, will be happy to take our money.

[Austrokiwi]

Why would the Australian banks operating in NZ change policy in NZ if they don't have to? Just because they have to conform to rules over the Tasman doesn't mean that they will bring the same rules in over here.

I am surprised you asked that question. Yes it is unlikely that banks will voluntarily apply an Australian Law in NZ, but the pressure that NZ politicians would feel from the NZ public is a very different matter. Given the massive profits that Banks in NZ have made, and the current economic climate..... public opinion is against the banksters and for a politician following the Aussie lead would be an easy win!

[muppet]

Tony 23 April 2009

From Tony's latest newsletter

If I Were a Borrower What Would I Do?
This week an emailer asked the following. Our response follows.
“I have revisited your newsletters of (a year ago) and you were advising to fix only for 1 year due to the uncertain nature of the economy. Unfortunately I chose to fix for 3 years at a rate of 9.05%, admittedly this was somewhat against the advise of my banker who was advising 1-2 years. My reason for doing so was that I wasn't sure when the upward trend would stop and I also was expecting the arrival of my 3rd child in
September so wanted some certainty around outgoings” He got on to asking whether he should break the three year 9.05% rate he locked into a year ago.
The cost to break will be set off the current two year fixed rate (two years left of your three years to go). So first, will you do better breaking then fixing one year and floating as I think is possible versus just fixing two years for a new borrower at the moment? Yes, but you sacrifice rate certainty which you valued so much last year. The loss of this certainty versus gambling that fixing one year at 5.49% then floating one year after that or fixing again will give an overall rate better than the current two year 6.25% seems risky. If the one year rate a year from now is, lets say, 6.5% from 5.49% currently, you will have a two year cost averaging 6%. That is minimal gain over the two year 6.25% which means breaking to take that strategy makes little sense.
What about breaking to fix longer? Lets say your desire for security so valued last year means you lock in at five years for 7.5%. For the first two years you are 1.25% p.a. worse off than not breaking. For the three years after you are still paying 7.5% and to be better off than not breaking then locking in another three years two years from now that three year rate in two years time would need to be higher than just under 8.5%.
Do I think the three year rate will be above 8.5% in two years time? That is possible given a global recovery scenario with inflation risk and the history of the three year rate shown here. A rate grossly over 8.5% is not likely however the graph suggests. So if you break and fix five years, you will probably come out just slightly better than not breaking then resetting three years in two years time.

It is not worth it in my opinion. If I were you I would stay with what I have now. Your only real risk is if global inflation surges in 2-3 years and that is not highly likely in my opinion. You fixed because you valued security. I would remember that.

If I were borrowing at the moment what would I do then? Margins have just increased for bank home loans. But they got compressed to a serious extent the data do not show in earlier weeks because mortgages were being written at fixed rates but when it came time to cover those rates through banks doing fixed rate borrowing the cost had shot up. So this suggests if we do see any cuts in fixed rates in the near future they are likely to be quite limited. If I were a punter I might wait for such a round of small cuts and fix in the 3-5 year area. But as a conservative type at the moment I would probably fix three years at 6.75%.

[SmallBrain]

OK, here is my bold prediction for the 30 April OCR review...

RBNZ will announce a rate floor of 3% until at least the end of Q2 2010.

[Austrokiwi]

OK, here is my bold prediction for the 30 April OCR review...

RBNZ will announce a rate floor of 3% until at least the end of Q2 2010.

IS that why the NZ $ has been climbing today?