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Home Loans Today Interest Rate review for June 2015

July 12, 2015 by · Leave a Comment 

Home Loans Today

Interest Rate Review for June 2015

The Reserve Bank surprised most economists and at least half the financial markets by cutting the Official Cash Rate (OCR) by 25 basis points to 3.25% on June 11. It also forecast another 25 basis point cut later in the year, with some expecting it as early as July 23 and others seeing a third cut in early 2016.
Governor Graeme Wheeler argued the 55% fall in dairy prices and the 60% fall in oil prices in the last year were dragging on demand and inflation in a way he could not have expected last autumn when he put up the OCR by 1% to 3.5%. He denied he had made a mistake last year, saying others had also incorrectly forecast a rebound in inflation.
Banks began passing that June 11 cut on in full to their floating mortgage rates almost immediately. By the third week in June banks were cutting their six month to two year mortgage rates by anywhere from 20 to 50 basis points in anticipation of more rate cuts. Some cut their advertised mortgage rates below 5% and there is now a real prospect of the lowest rates for the best customers being closer to 4% than 5% by the end of the year.
Inflation for consumer prices remains well below the 2% mid-point of Reserve Bank’s 1-3% target range and Governor Wheeler reiterated in his news conference after the bank’s June quarter Monetary Policy Statement that he had to focus on meeting his CPI target first, even though he remains concerned about financial stability risks inherent in Auckland’s housing boom.
Meanwhile, inflation for asset prices in Auckland continued to run rampant and real estate agents reported stellar sales volumes and prices in May. Finance Minister Bill English described it as a “feeding frenzy.”
REINZ reported that Auckland’s median house price rose NZ$30,000 in May to a record high NZ$749,000, while the median price excluding Auckland fell NZ$4,000 to NZ$349,000. Annual inflation in Auckland rose to 19.8% while national inflation excluding Auckland was 2.6% from a year ago.
Both REINZ and Barfoot and Thompson reported there were few signs yet that the Reserve Bank’s new LVR limit in Auckland for rental property investors and the Government’s two year ‘bright line’ capital gains tax test were having much impact on the market, although they were only announced in mid-May and do not formally apply until October 1.
However, there were signs that property investors were spreading out from Auckland. REINZ reported a 40.8% rise in the seasonally adjusted volume of house sales in Waikato/Bay of Plenty in the three months to May from a year ago as the buying started to spread out from Auckland. Auckland volumes rose 27.4% from a year ago.
There were also anecdotal reports that some foreign buyers were pulling out of deals to buy apartments off the plan after the Government’s announcement they would have to declare their passport and home country tax details when buying properties here.

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