Interest Rates

[muppet]

This week's mortgage news roundup from interest.co.nz.

Mortgage Rates
The past week has been relatively quiet with only a handful of smaller lenders making changes to their home loan rates. However the changes reinforce the market trend to drop six-month rates and increase longer-term ones. Full details of recent rates moves are here.

We are often asked, what is the best deal? This excellent graph shows you how rates compare to historical averages at the moment. When you see it you will quickly recognise one set of terms is much better than the other.

To get an idea of where rates are heading then you should read our wrap of what various economists are thinking. In this story we have one suggesting further cuts and others less optimistic that rates will stay down.

Members of Parliament have been muttering about enquiring into how banks set their rates and whether us Kiwis are getting ripped off. Well yesterday they decided not to look at what is going on with how much interest you have to pay. In this Blog mortgagerates.co.nz publisher gives his take on what is going on.

Check and compare Home Loan rates here.

[Viking]

Swap rates are slowly going down. Money is subject to supply and demand and the demand world wide is down,down down except for Govt. bonds. So are interest rates going to fall a bit more amd stay stable for 3-4 years. Possibly.

[muppet]

Rate cuts may have ended

By DAVID HARGREAVES - BusinessDay Last updated 14:32 16/07/2009
It appears increasingly likely there will be no more interest rate cuts from the Reserve Bank.


This was the view emerging today as the country's economists digested a consumers price index increase of 0.6 per cent in the June quarter, giving an annual rate of inflation of 1.9 percent.
While this was the lowest rate in nearly two years, it was somewhat higher than had been expected. The RBNZ had forecast 1.7 percent. A 0.9 per cent spike in food prices, led by a surge in the price of vegetables, was one contributor to the slightly higher figure.
While economists said the RBNZ would not be unduly concerned that the inflation figure was a bit higher than it had anticipated, the signs were nevertheless there that we may have seen the last of interest rate cuts.
The RBNZ has axed interest rates from 8.25 percent to 2.5 percent in the past year as it attempts to revive an economy in recession since the start of 2008. However, at its last rate review in June it took a pause. If the 2.5 percent rate proves to be the low point of the current cycle then it appears unlikely that the low, particularly fixed-rate, mortgages seen earlier this year are likely to be replicated.
Deutsche Bank chief economist Darren Gibbs said the inflation outcome, together with other developments both locally and abroad, "does tend to support our view that the RBNZ's easing cycle is over".
"We remain of the view that the RBNZ is likely to begin retightening [by raising rates] somewhat earlier than it currently envisages," Gibbs said. He picked that the RBNZ may start to move rates up again from about June next year - as opposed to the latter part of the year, as the RBNZ has previously indicated.
Apart from the rise in food prices, other significant contributors to the latest inflation rate were transport prices, which were up 0.6 per cent, mainly from higher prices for petrol and the purchase of second-hand cars.
Higher electricity prices pushed the household utilities and housing category up 0.4 per cent and the discounting prevalent in travel sent recreation and culture prices down 1.2 per cent mainly due to cut price overseas package holidays.
Commonwealth Bank of Australia New Zealand economist Chris Tennent-Brown said he expected the RBNZ would have "some tolerance" for inflation being higher than its expectations - given the depth of the current recession.
"Inflation below the [1 percent to 3 percent] target band is a greater concern in the near-term for central banks," he said.
http://www.stuff.co.nz/business/2599...may-have-ended

[mortgage broker]

Just a thought but all this raising money by government bonds will at first increase rates possibly, but surely once the government spends the money at some point this money in the system will create extra cash. But I guess with inflation our governments will increase OCR, but coudn't this still mean lower long term interest rates, a lot further down the track, lets say 4 years from now?

[Austrokiwi]

Just a thought but all this raising money by government bonds will at first increase rates possibly, but surely once the government spends the money at some point this money in the system will create extra cash. But I guess with inflation our governments will increase OCR, but coudn't this still mean lower long term interest rates, a lot further down the track, lets say 4 years from now?

Maybe my coffee hasn't cut in yet. I am finding it hard to understand exactly what your saying.

Are you saying that:

in four years time the OCR will drop? or that long term borrowing costs will reduce?


If it is the first what process do you see occurring to reduce rates in four years time ( I know you just said there was potential)


Sorry if I seem to have missed you point completely

[mortgage broker]

I was asking a question. I thought that the OCR would increase sharply but long term borrowing costs would drop?

[Austrokiwi]

Yep it was a case of not enough coffee too early in the morning.

I think it is possible that the OCR could increase yet longer term rates ( in four years) could be lower. When I moved to Europe I realised that NZ mortgage rates didn't match the patterns of most other countries. 1 example Floating rates in Austria generally tend to be lower than fixed rates. That may seem weird but its based on depositors expectations. Short term funds (used for floating rates) appear to get just above the base interest rate ( equivalent of OCR) where as longer term deposits ( used for fixed rates) often attract a higher interest rate. From what I understand in NZ banks tend to borrow short and lend long, ( I am very open to correction on this matter) expecting to be able to refinance the long lends easily.

[muppet]

Rates one big game of poker

By PHILIP MACALISTER Last updated 12:04 31/07/2009
OPINION: One of the great things about watching interest rates is the poker game that goes on between the central bank and markets from time to time.
Yesterday's official cash rate announcementis one of those games.
Everyone agrees we are somewhere near the bottom of this part of the economic cycle, therefore the new question becomes when are things going to turn and when will rates start to rise again?
Following the previous OCR announcement we have seen tentative signs of a very modest recovery; this positive news sent all the economists rushing off to make new predictions about rate rises.
We have seen this through our Experts' Views section where all sorts of scenarios are developed and argued. Few, in fact only one, argued for further cuts.
It seems to be the role of the wholesale financial markets to anticipate Reserve Bank governor Alan Bollard's next move.
Most had decided he was done cutting the OCR, so their next question was when is he going to start hiking?
Yesterday's statement illustrates how they have a built-in tendency to get ahead of themselves.
Bollard made it very clear yesterday that he views the signs of recovery as patchy at best and any recovery was weak.
He then went onto say that there may be scope for further easing - so perhaps we are not quite at the end of this part of the cycle yet.
What does this mean for borrowers? Well, the basic message is that continuing to use a short-term fixed rate strategy will still work.
This paragraph in the statement is arguably the most crucial for borrowers:
"We consider it appropriate to continue to provide substantial monetary policy stimulus to the economy. The OCR could still move modestly lower over the coming quarters. We continue to expect to keep the OCR at or below the current level through until the latter part of 2010."
There is always the caveat things may change, but at the moment the risk to the short-term fixing strategy is low.
Attention will now turn to the wholesale markets. We have seen swap rates creep up slightly as the market got ahead of itself in anticipating rate rises. However, they have come back five to10 basis points after the announcement.
I would expect these rates to ease back some more and it is conceivable home loan rates could fall marginally on yesterday's news...
If they don't fall, one thing is for sure; the Reserve Bank has put a cap on any immediate home loan rate increases.
Philip Macalister is the publisher of www.mortgagerates.co.nz and the NZ Mortgage Magazine.
http://www.stuff.co.nz/business/indu...-game-of-poker

[muppet]

SBS Bank have started to raise short term rates.
6mths up to 5.6%
1yr up to 5.7%

[muppet]

ASB hikes mortgage rates

New 9:42AM Friday Aug 07, 2009
In another sign that mortgage rates are rising despite the Reserve Bank's Official Cash Rate (OCR) remaining on hold, ASB and Bank Direct raised 18 month, two, three, four and five year mortgage rates on Friday morning by between 10 and 50 basis points (bps). Variable, six month and one year rates remained unchanged.
The move may disappoint politicians and the Reserve Bank, which have argued the banks could have cut some shorter term mortgage rates more over the last year as the Official Cash Rate was cut from 8.25 per cent to 2.5 per cent. The Reserve Bank had also hoped to stave off increases in mortgage rates by promising to keep the OCR at or below 2.5 per cent until the latter half of 2010.
If other banks follow ASB, the increase in the mortgage rates that most homebuyers use could dampen any housing recovery likely to coincide with a rush of new listings in the spring. ASB's economists released a survey today showing most home buyers now expect house prices to rise and many expect interest rates to rise.
ASB raised its 18 month rate by 10 bps to 6.1 per cent; its two year rate by 30 bps to 6.55 per cent; three year by 50 bps to 7.45 per cent; four year by 40 bps to 7.95 per cent; and five year by 30 bps to 8.3 per cent.
The new two, three, four and five year rates are now the highest standard mortgage rates for a bank in New Zealand. BNZ is offering an 18 month rate of 6.19 per cent.
Bank Direct's 18 month, two, three and five year rates were raised by the same amounts and sit 5 bps below the corresponding ASB rates. Bank Direct do not offer a four year rate.
http://www.nzherald.co.nz/business/n...ectid=10589247

[Rolf]

But wait - didn't Exnzpat insist fixed rates would come down...?? I guess us poor sods who fixed long at 6.5% will just have to live with it - I know I can.
Care to comment, Exnzpat?

[muppet]

ANZ and NAB have also raised their longer term rates.
Makes a change that Westpac wasn't the first to raise rates.
ANZ
2yrs 6.55%
3yrs 7.40%
4yrs 7.95%
5yrs 8.30%
NAB
2yrs 6.50%
3yrs 7.45%
4yrs 7.95%
5yrs 8.25%

[Viking]

Interesting conundrum.
A couple of weeks ago I posted that ASB were not lending and now they lead the rates charge. Wonder why. A bit to heavy in poor quality commercial and business loans I'd guess.
I also posted that Tga City had granted only 45 consents for June.
I got to thinking about this.
45 houses at say 500k is only $22.5 million in new lending, assuming that it is all new and that the amount per house is 500k. If not then the amount is less. Now considering that these figures are based around a population of around 100,000 in the city area, an area with the fastest growing population for many years past, that would extrapolate out roughly to about 41 times for NZ or somewhat less than a 1 billion dollars.
Spread that over 5 major banks and various other house lenders and really no one is doing to much new business.
So why are rates rising? Not that much demand obviously.

p.s. at the high point Tga CC was processing over 250 consents per month.. 45 is less than 20% which is also probably consistent throughout the country.

[mortgage broker]

I wouldn't use Tga as an indicator of demand for cash in NZ or abroad.

[markw1]

Kiwibank and TSB seem to be holding out and staying put.

Media have been quiet in regards to the lastest increases.