Variable 5.60%
6 Month Fixed 5.59%
1 Year Fixed 5.55%
2 Year Fixed 5.65%
3 Year Fixed 5.95%
5 Year Fixed 6.95%

Interest Rate Outlook

Don’t turn on the news if you want any light relief – even though we got through the election rather painlessly we are still subjected to painful scenes every night. Most of which come from overseas and it is not uncommon to see 3 or more clips of rioting or fighting amongst citizens of the same country.

The financial stress that the world economy is under adds fuel to simmering tensions that run through many countries and right now every day it appears that Europe gets worse, as economic instability spreads from Greece, though Italy, France and even on to the previous impregnable Germany. It is at times like this that the tyranny of distance can be our friend, although while we are removed from the violence (except for some smelly campers in our cities) we see, we are not removed from the economic pressure the bad debt crisis in Europe is generating.

Fortunately for us all, this pressure has currently resulted in an easing of long term fixed rates and for the first time in some months we saw a reduction of interest rates in the 2 & 3 year fixed periods. How long this will last or whether it will continue is too difficult to know, however it now sees Variable and Fixed Interest rates closer than they have been for some time.

As such, the question that is now common, is should I fix my rates now? There is no right or wrong answer to this question although with 2 year fixed rates now matching variable there is no longer a dollar cost in buying some stability. It is just some flexibility that clients will forgo by locking in now.

The question of will interest rates go even lower is also a hard one to answer, while we are at historic low rates there is no guarantee that if the above European issues worsen that we will not see further interest rate cuts across the world. Given there is so much uncertainty perhaps the best strategy could be splitting your loan into part variable and part fixed @ a mid-term rate.

If you are looking for a free review please do contact Kevin on 021532569.

Current Interest Rates as at 1 November 2011

Variable 5.60%
6 Month Fixed 5.59%
1 Year Fixed 5.59%
2 Year Fixed 5.89%
3 Year Fixed 6.45%
5 Year Fixed 7.25%

Interest Rate Outlook

Well, that’s one gorilla off our back! (& thank goodness!). Not unlike RWC, success is going to take the sum of many parts working together before we will win and of course there are still those variables we cannot control, (think Referees here) such as the state of the European & American economies which unfortunately our banks still have to head toward for funding. We will always be susceptible to their financial stability but that is a “known” by our banks so more & more they are trying to limit the amount they need to fund offshore, (similar to taking the referees decisions out of the game).

Internally, our economic engine continues to be our rural sector and while commodity prices have come back somewhat the market is still strong. The rural surge is timed nicely with the historically low interest rates allowing farmers to reduce debt, freeing up some internal bank capital. Our beautiful country is also set for a tourism boom on the back of what the world has just seen and this should assist the retail sector continue their strong year on the back of RWC.

So there appears to be money flowing in our economy, we just need to ensure this is best utilised, not unlike the farmers, reduction of debt should possibly be many individual’s focus.

Sustained low interest rates are also helping the housing sector as we see the average days to sell houses continue to drop and many examples of multiple offers being placed properties, a momentum we believe will carry through the traditionally buoyant summer months.

As for a current borrowing strategy, variable rates look set to remain at current levels through until mid-2012, accordingly, the floating rate looks the best option right now, although 1 year & 18 month rates are practically the same and provide some nice stability of payment. For those prepared to pay a small margin of 0.25% – 0.50% you can now lock in for 2 years.

If you’re mortgages are coming off fixed interest rates Home Loans Today can help negotiate for you with the main banks. Please do contact Kevin if you would are looking to refix your mortgage.

Current Interest Rates as at 5 September 2011
Variable                 5.60%
6 Month Fixed         5.60%
1 Year Fixed           5.75%
2 Year Fixed           6.20%
3 Year Fixed           6.70%
5 Year Fixed           7.40%

Interest Rate Outlook
Occasionally the tyranny of distance can be your friend and being a little isolated and removed from the debt crisis fallout in Europe is certainly a good thing at this juncture. However while activities in these larger markets do have an impact on our funding cost the severity of their impact is lessened. Nonetheless, the financial mess that is Europe is likely to see interest rates held at their current low levels here until first quarter of 2012.

Locally, while the property market remains flat it is being readied for a strong 2012 on the back of the Christchurch rebuild and we are already starting to see positive signs in the powerhouse Auckland market with well-priced houses moving very quickly.

Of course we are half way through one of the strongest economic spend booms of the past 5 years thanks to the oval ball, but this light relief really will be a temporary measure, however it does clearly add fuel to our positive growth.

As we enter the last quarter of 2011 we can’t see markets this year in Europe moving enough to put any pressure on interest rates internationally and therefore locally, as such we believe that it may not be until the end of first quarter or mid second quarter of 2012 before we see any movement in interest rates.

With the potential sting out of any interest rate rise for the immediate future we are reverting to our recommended strategy of early this year and suggest that the price of variable interest rate money at the moment is too good to pass up and with little risk over the next 6 months we should all enjoy the mid to high 5% interest rates currently available.

However, the above strategy does come with a caveat. You need to keep your eyes and ears open for when rates do start to move in 2012 as we are at current record lows and at some point in 2012 it will be wise to lock in for a period at these historically low rates.

What’s Hot
There is only heat on one thing at the moment, the mighty All Blacks, even non rugby followers cannot help but be caught up in the hype that is RWC and haven’t we as a country done ourselves proud, it is great to see how we have embraced the tournament – Go The AB’s!

Variable 5.40%
6 Month Fixed 5.60%
1 Year Fixed 5.55%
2 Year Fixed 6.20%
3 Year Fixed 6.70%
5 Year Fixed 7.40%

Interest Rate Outlook
Predicting Interest rates is as difficult as a game of charades with children right now. No sooner does there appear to be the movements of recovery in NZ & demand for fixed interest rates and the next thing the global debt crisis worsens and we all start second guessing each other.

Clearly our friends in the US and Europe are along way out of the woods in relation to their debt and funding troubles & this affects us, as due to our size we fund a good portion of our residential mortgage book on the international money market.

As Europe & the US scramble to keep their credit rating and head above water the price of fixed term money remains low and our earlier concern that fixed interest rates could spike has eased.

Locally, we are still showing signs of recovery with housing consents starting to move upward and the level of mortgage approvals up some 20% on 2010 indicating activity is definitely on the increase. Furthermore as soon as the government can coordinate the Reinsurers overseas to provide cover on new houses built in Christchurch going forward the market will really kick as currently this is stifling the rebuild and recovery in the region.

With so many variables outside of our control it does not give anyone much confidence to make bold predictions and while the fixed rate pressure has eased, we still feel the above international debt crisis has only delayed the inevitable rate increases. We do not believe we will see rates increase in September now as originally thought and this could be pushed out to as far as the end of the year, providing more breathing space around these sub 6% interest rates.

Put simply if you are of conservative nature, the current sub 6% rates for 1 year or low 6% for 2 years still look appealing, if you are more aggressive and are prepared to keep an eye on the market the current variable rates are still the cheapest option. The only option we currently have any confidence in is to have a dollar each way by fixing some and having some on floating.

What’s Hot
As the above outlines the finance market sure is a fickle place and majority of our clients really are confused as to what the right thing to do is in relation to interest rates right now. The single biggest demand we currently have is for advice on interest rate strategy – see above for ours.

1)      Buy wholesale from the property market

2)      Buy before the next boom in the property cycle.

3)      Adding value to the property through renovations.

Why Renovate Properties?

1)      Run Down properties are easier to find in the market.

2)      Easier to negotiate the price down on a property that needs to be renovated.

3)      Renovations in a raising market will add value straight away.

4)      Renovated properties increases rental returns.

Variable 5.40%
6 Month Fixed 5.59%
1 Year Fixed 5.55%
2 Year Fixed 6.20%
3 Year Fixed 6.70%
5 Year Fixed 7.45%

Interest Rate Outlook

Should I stay or should I go now? If I go there could be trouble, if I stay there could be double….
This rock song classic by the Clash sums up consumers’ attitudes toward interest rates at the moment. Should I fix now or should I stay floating?

The consensus of most is that you should fix your interest rates soon, but when, should you do it now or can you squeeze another month or two out at these basement rates of under 6%?
As the bank economists sat glued to their IPad, IPhone, Blackberries and some even the old fashioned computer or worse still the archaic radio for Reserve Bank Governor Alan Bollard’s address last Wednesday, most were left none the wiser as to whether now is the right time to lock in. Dr Bollard certainly has indicated that rates are going to rise this year, although exactly when nobody is sure.

You get the impression he would like to move now but is very concerned about the strength of our currency (or more so the weakness of the US) and this may be the sole factor in holding rates back to their current level. As such it doesn’t really put us in control of our own destiny when it comes to rates as we are reacting to events in the US & Europe as their debt crisis worsens.

We pick that he will move in September and the move could be as high as 0.50% which will see a groundswell of consumers running to fix their interest rates. Be aware though that as demand for fixed rates increases so may the price & we would not be surprised to see fixed rates move out before the variable rate moves.

Our advice is to not be too greedy now as it may cost you in the future. It may be worth considering locking in part or all of your mortgage in the next month or so because, let’s face it, interest rates sub 7% locked away for a period of time don’t look too bad!

What’s Hot

Fixing your interest rate! As many of our customers get nervous they are flocking from variable interest rates into fixed rates. Nobody knows when but at some stage this year rates are going to rise and often it is the fixed rates that move before the variable, so fixing now does make sense.

Current Interest Rates as at 1 July 2011

Variable                      5.40%
6 Month Fixed              5.59%
1 Year Fixed                5.55%
2 Year Fixed                6.20%
3 Year Fixed                6.70%
5 Year Fixed                7.45%

Interest Rate Outlook

You can’t help but think that we might actually be our own worst enemies in slowing the economic recovery. There are so many variables that indicate we are set for strong growth but they have been this way for a while now.

We have a market shortage of quality properties on the market, those that hit the market well priced are snapped up and market rents are rising which will surely start to push people toward buying. We also have a whole new wave of potential buyers hitting market as Kiwi Saver matures to a point that allows consumers to withdraw their and their employer’s contributions, as well as qualifying for the government first home buyer’s grant of $1,000.0 per year for every year you have been in the scheme.

So what is holding us back? Confidence or more to the point a lack of it, as a nation we are still sitting on our hands, afraid to spend, afraid to take a step and it is this lack of activity together with a net outflow in terms of migration that is holding our economy back. We just need a little more activity and demand and the market can get some momentum which it sorely needs.

Mortgage approvals are up just over 10% on 2010 so this is a good indicator and as soon as the rural sector actually starts spending their 2^nd consecutive record payout as opposed to focussing solely on reducing debt the quicker the economic recovery will kick in.

In relation to our recommended borrowing strategy we hold a similar view to last month, we have no doubt that we will see rate increases in the last quarter of this year and as such feel that the shorter term fixed rates probably offer the best value as there is little differential between variable and 1 year or 18 month fixed rates. For those a little more risk adverse we suggest the 2 year rate still offers good value @ less than 1% above current variable rates, as long as you realise you pay a small premium now to buy some security.

What’s Hot
Kiwi Saver, it has now reached the stage where consumers who have been in their Kiwi Saver for 3 years can withdraw their and their employers contributions together with a first home buyers grant from the government puts many of these people in a position to buy their first home.

If you are looking for help in buying your first home and have been in Kiwi Saver please do contact Home Loans Today to help you through the process.

Variable 5.40%
6 Month Fixed 5.59%
1 Year Fixed 5.55%
2 Year Fixed 6.20%
3 Year Fixed 6.70%
5 Year Fixed 7.45%

Interest Rate Outlook
You can be excused for missing the release of the biggest ‘no news’ budget in recent history, it just sort of came and went with very little fanfare and the underlying message continued that we have to keep our spending to a minimum both as consumers and from a government perspective with all focus rightly looking forward to the rebuild of Christchurch.

A tight budget means that fiscal policy will keep growth in check for the year ahead which will take some pressure off the Reserve Bank in terms of how high they would need to push interest rates, which is of course a good thing.

House sales figures continued to lift through April & May from their late 2010 trough however still remain around a third below historical averages. Encouragingly though building consents are on the rise with a new motivation arising to ‘get it done now’ before construction sector shortages emerge across the country use to the Christchurch rebuild. This increased activity together with a second successive yearly record payout on the dairy sector should start to give the economy a nice little boost, the reality is farmers will have to start spending or be faced with a sizeable tax bill & we all know how much cockies like paying tax!

All of the above is leading to a pretty positive outlook with confidence quite high in business and investment sectors, this if course leads us to our current recommended borrowing strategy.

With more than 2% variance between long term fixed rates of 5 years it is difficult to see value in longer term rates. However, we have no doubt that we will see rate increases in the last quarter of this year and as such feel that the shorter term fixed rates probably offer the best value as there is little differential between variable and 1 year or 18 month fixed rates. For those a little more risk adverse we suggest the 2 year rate still offers good value @ less than 1% above current variable rates, as long as you realise you pay a small premium now to buy some security.

What’s Hot
Competition really is a beautiful thing and now the Banks credit appetite has returned they are returning to their old tricks of sweetheart deals on interest rates and professional fee contributions. We are seeing some very sharp pricing now as the banks compete for our clients.

The Emissions Trading Scheme is another tax on the New Zealand people. This will put up prices on Petrol, Electricity and all things necessary for life. Petrol has already now gone up 6c a litre. Food prices will also increase due to the costs of transportation going up. There will be a double whammy when GST going up in October.

Wider Ramifications:

The emissions trading scheme as a tax will increase inflation resulting in the reserve bank increasing the New Zealand interest rates. With GST also going up in October you will see another round of price rises which will continue to add pressure on the inflation rate. The costs of production will have a double increase in prices as well. This will continue to make New Zealand companies less competitive in the world economy.When interest rates go up this will also increase the New Zealand dollar rate. Again this will seriously affect the exporters in New Zealand. By placing an increased tax burden on the New Zealand Public this will continue to depress the New Zealand market with regards to consumer spending. Consumer spending accounts for around 66% of the spending in the local economy. You will continue to see retail shops struggle in the local market. Employment numbers will also go up as the recovery stalls and heads back towards a negative growth situation. You will see a continuing trend of more mortgagee sales as the increase in rates and the cost of living will continue to go up. The question is “Will the New Zealand Emissions Trading scheme save the planet? The answer is no it won’t and it will seriously affect those in the community who are already struggling to meet the cost of living.

Some Economists are saying that New Zealand will get out of the depression by an export lead recovery. This will produce more employment and lead to an increase in Government income through increased productivity. With these current Governments policies I see that the opposite will happen. By increasing the costs of production the New Zealand Government are further suppressing the market.

Recommendation:

My recommendation to this Government is to totally scrap the Emissions trading scheme. They should be looking for ways in which to bring down the prices of electricity rather increasing them with unnecessary taxes. The Government should look for ways to improve the efficiency within the sectors they do control. By doing this they will increase the productivity of the whole of New Zealand. In a future blog I will be looking at one sector in particular which could do with reform and will bring benefits to all New Zealanders.