Why NZ needs the 30 year fixed mortgage now

[donna]

Hi Pters,

Who here has a 30-year fixed-rate mortgage? My guess is none of you. Why? Well, unless you own property in the USA you can not get a 30 year fixed rate mortgage.

USA house prices have declined but not as much as in other countries due to the long-term fixed rate mortgage providing more price stability.

Sweden and New Zealand housing prices both fell roughly 14% from their peaks, while Germany, South Korea, Canada, and Australia saw declines between 5 and 10%. Only the United Kingdom, Denmark, the Netherlands, and Norway saw declines within a few percentage points of the US, ranging between 2.1% and 3.7%.

BusinessInsider (link below)

More interesting.....

So fierce is the competition in the US mortgage market, that the Wells Fargo 5.5% rate is just 75 to 100 basis points above the US Federal Funds Rate target range of 4.5% to 4.75% set by the Federal Reserve, the US equivalent of New Zealand’s Reserve Bank Te Pūtea Matua.

The ANZ 7.09% five-year rate is 234 basis points above the Reserve Bank’s 4.75% official cash rate.

Templeton, from Niche Mortgages in Auckland, says those long-term American mortgages allow people to lock in rates, and then get on with paying their home loans off without worrying about the threat of having to refix in just a year or two.

From Stuff

We know not everything is rosy with the USA market - especially the way the lenders can bundle and sell off their loans to investors, and we know what happened a few years ago with Freedie Mae and Freedie Mac.

However, a more open mortgage lending environment would create more lending products and competition.

In the USA 90% of homeowners opt for the 30 year fixed rate - however they don't keep it with the same lender. They can break it and go somewhere else - as easily as we can swap our Kiwisaver provider! Plus they don't get done with a huge break free!

Our homeowners are stressed to the hilt! They want to keep their home yet rising interest rates are giving many no choice but to give up their home!

Our Government can do more to provide housing stability - they just need to 'want' to do it! For example.....

Stubbs says government should shoulder a lot of the blame for New Zealand’s short-term home loans culture.

He says New Zealand does not finance the country’s national debt using long-term bonds. That leaves banks and investors without a long-term finance rate that they can use to price long-term home loan rates.

Come on National show your mettle and support the need for change in our banking and lending sector.

cheers,

Donna

[Chris W]

Our homeowners are stressed to the hilt! They want to keep their home yet rising interest rates are giving many no choice but to give up their home!

People are free to choose, however people are not free to choose the consequences of their choice.

Warnings were given by the RBNZ in February 2021. Some people chose to heed those warnings, others chose to ignore them. Other warnings were given and people chose to dismiss those warnings.

Many house owners chose to borrow large amounts of money to buy a house.

They are now facing the consequences of their choice.

Our Government can do more to provide housing stability - they just need to 'want' to do it!

Come on National show your mettle and support the need for change in our banking and lending sector.

People want the upside of house price rises and not the downside of house price falls?
People want the upside of lower interest rates and not the downside of higher interest rates?

People need to take responsibility for their own choices.

Capitalism without bankruptcy is like Christianity without hell.

[Jeffa]

^^ RBNZ was the only central bank in the world that tentatively admitted they got it wrong by over stimulating the economy and printing too much money

These higher interest rates are unlikely to be more than an annoyance for many seasoned property investor as there rents will far outweigh the mortgages if they even have one

Now for many young people who jumped into the peak of the market, they didn't stand a chance, I doubt many if any would have understood how Quantitative tightening/Easing or liquidity cycles work, even as the RBNZ was telling people to ease of borrowing in 2021, they still continued to print more money in the form of the Funding for lending program.

All these young people saw was a 2.5% interest rate and house prices going even higher, it's not there fault.

True capitalism would not have required Money printing, true capitalism would have let companies and job losses occur as the world locked down, what the central banks did was socialism in its purist form.

If the RBNZ and NZ government didn't try and do what they thought was best, the housing market would be stable at today's prices and mortgage rates neutral at about 4 to 4.5%

Every western government seems to think they know what's good for it's people, they only make it worse.

The RBNZ and other central banks basically delayed the 2020 recession to 2023, so what was the point? ,

(Fyi they will eventually start money printing again in the next 12 months, they have to, there is no going back, the debt needs to be expanded to pay for the old debt)

[donna]

Hi Chris W,

So no changes needed? I get people were warmed but that’s not good enough. How about some real disruption in the financing sector so there is more choice, and lower fees.

cheers

Donna

[McDuck]

Totally agree.
Faced with two decades of money printing (forcing fake house price gains),
what young person wouldn't jump at any chance to get out of the rent trap.
Nothing in their memory would cause them to believe that a house price could drop or an interest rate be above 3%

[jemimafisher]

I really feel for anyone who bought a home in the last two years while house prices were at their peak and interest rates were at their lowest. Some of these homeowners bought their houses on a 5-10% deposit. There are a lot of very stressed homeowners out there right now, particularly those who are relatively new to the market. As for renters, the hope to get on the property ladder diminishes by the day. With the rising cost of living and the impending rent increases, owning a home is now unattainable for many.

[Chris W]

USA house prices have declined but not as much as in other countries due to the long-term fixed rate mortgage

FYI, the US had 30 year fixed rate mortgages in 2006 - 2012 during the GFC.

House price index for US national home prices fell 26% from peak of 183.38 to trough of 135.86.

https://fred.stlouisfed.org/series/CSUSHPINSA

Some cities had much larger house price falls - Miami, Phoenix, Las Vegas.

[Jeffa]

FYI, the US had 30 year fixed rate mortgages in 2006 - 2012 during the GFC.

House price index for US national home prices fell 26% from peak of 183.38 to trough of 135.86.

https://fred.stlouisfed.org/series/CSUSHPINSA

Some cities had much larger house price falls - Miami, Phoenix, Las Vegas.

30 year mortgages were fine

The problem was left wing politics

The Bill Clinton administration in the 90s forced the big banks to lend to minorities, Black's, Hispanics, and other low socioeconomic classes or face massive fines.

When credit stopped, the same classes could not afford the repayments, many were over leveraged and should never have been approved for so much debt, many thought they could simply refinance

The ten year fuse to ignite the GFC was left wing policies, it's amazing this is not more well known or talked about in mainstream media or the history books... It's easier to be P.C and blame the rich prick banks .

The previous 5 years of left wing policies in New Zealand lead us to our failing economy today.

[donna]

^^ and 90% of mortgagees have a 30 year fixed rate loan.

Stubbs says government should shoulder a lot of the blame for New Zealand’s short-term home loans culture.

He says New Zealand does not finance the country’s national debt using long-term bonds. That leaves banks and investors without a long-term finance rate that they can use to price long-term home loan rates.

Why can't we do this? There must be a good reason - and I am sure a few PTers know the answer.

cheers,

Donna

[Jeffa]

^^ and 90% of mortgagees have a 30 year fixed rate loan.




Why can't we do this? There must be a good reason - and I am sure a few PTers know the answer.

cheers,

Donna

Yeah, it's a different economy and structure in the US Donna

I think there's over 4000 banks in the U.S, and in New Zealand our banking system is dominated mainly by the big 4 and low competition

America is the home of capitalism and NZ is far more regulated in the banking system leading to less competition, I figured out over a decade ago many kiwis can't make the excessive wealth as many Americans do, we do have a socialist culture and a dislike of others becoming wealthy which is why most of my excess income goes to off shore investments.

[Chris W]

"New Zealand does not finance the country’s national debt using long-term bonds"


How would you as a taxpayer feel if the NZ government issued 30 year bonds in an environment when inflation and interest rates were high. Let say the government borrowed money at 18% p.a for 30 years?

From a government fiscal management perspective, that would be a very expensive decision. Taxpayers might have to suffer via higher tax rates, lower quality of services as the government has to use money to service the 30 year high interest rate loan and had to cut services (e.g schools, roads, hospitals, etc).

However that is what would be required to provide a benchmark price for 30 year interest rate swaps - the government needs to be issuing 30 year bonds EVERY year regardless of the price in order to provide a benchmark price for the 30 year interest rate swap. If they stop issuing 30 year bonds, then there is no benchmark price for the 30 year interest rate swap.

[donna]

Thanks, Chris W and Jeffa. So no chance of getting longer interest rate mortgages for homeowners. How about some reining in on how much banks can charge above the OCR?

Wells Fargo 5.5% rate is just 75 to 100 basis points above the US Federal Funds Rate target range of 4.5% to 4.75% set by the Federal Reserve.

vs

The ANZ 7.09% five-year rate is 234 basis points above the Reserve Bank’s 4.75% official cash rate.

cheers,

Donna

[Engineer]

I have a far better idea to break up the reserve bank’s monopoly control on money supply and interest rates. Do we really want to be beholden to these twats ? Of course not. Bring in competition and let the average Kiwi borrow directly from any overseas bank at an interest rate and loan term that they agree to between themselves. The overseas bank can decide if your security is any good. Let the overseas bank or local bank chase after your business with a competitive interest rate and foreign exchange insurance.

[McDuck]

I have a far better idea to break up the reserve bank’s monopoly control on money supply and interest rates. Do we really want to be beholden to these twats ? Of course not..

Not sure , but I think the whole central reserve system was put in place due to market instability, the great depression.. not sure, worth a closer investigation. You might be doing the economic equivalent of asking why we need breaks on a car.

[McDuck]

^^ and 90% of mortgagees have a 30 year fixed rate loan.

Why can't we do this?

cheers,

Donna

Didn't NZ have a housing corp loan scheme back in the sixties?
Pretty sure it was for decades, and at a fixed rate.
Know anything about this?