The mortgage market is poised to shift significantly in the first quarter of 2013.
Borrowers on a floating rate can achieve either lower payments or pay off their loans faster if they chase a better interest rate deal now.
The shift could even be faster and more dramatic that the one we saw from 2009 to 2011 when borrowers switched en mass from fixed to floating.
This is because borrowers on floating rates don't need to wait until their current arrangement 'expires' - there is no 'break fee' when you go from floating to fixed.
But there are savings to be had.
By now, most borrowers know that you can get much better deals by engaging in earnest negotiations with more than one bank.
The mortgage market is only growing modestly, and banks are working hard to build their portfolio of mortgage loans to maintain their profitability. But the main way they do this is by winning business off their rivals. That makes for a very helpful negotiation environment for borrowers.
However there is a catch.
If everyone moves from floating to fixed at the same time, the wholesale markets will get flooded with transactions banks need to make to accomodate the shift. The 'payers'/'takers' balance in the swap markets become unbalanced and the wholesale swap rates will move quickly. Swap rates will rise.
Fast rising swap rates will remove the banks ability to hold their fixed rates at current levels.
When that happens, the availablility of some low fixed rates may disappear.
The best benefits will go to the early movers.
And while you have been holidaying, swap rates have been starting to trend up.
Here is a simplified table of what rates are on offer now (Monday morning). It is not a comprehensive table; you can get that here »
| as advertised | Floating | 1yr Fixed | 2yrs Fixed | 3yrs Fixed |
| % | % | % | % | |
| ANZ | 5.74 | 5.25 | 5.39 | 5.90 |
| ASB | 5.75 | 5.45 | 5.25 | 5.90 |
| BNZ | 5.74 | 5.25 | 5.40 | 5.90 |
| Cooperative Bank | 5.70 | 5.25 | 5.35 | 5.75 |
| Kiwibank | 5.65 | 5.25 | 5.25 | 5.65 |
| SBS / HBS | 5.65 | 5.25 | 5.30 | 5.65 |
| TSB | 5.79 | 5.25 | 5.30 | 5.90 |
| Westpac | 5.75 | 5.40 | 5.40 | 5.90 |
Most 'specials' disappeared over the holiday break, but there are still a few around - and the main one to notice is TSB's 4.95% for a fixed term of 15 months. And a few non-bank lenders are offering good deals too - check out AMP Home Loans, Medical Securities (if you are a member), Resimac, NZ Home Loans, and Sovereign.
At the risk of sounding repetative, the above rates are the advertised rates, and negotiation should get you bettere deals than these - although that will depend largely on your personal financial situation.
The point is, shifting from floating, to say a 2 year fixed rate could easily save you 0.4%, possibly up to 0.7%, again depending on your situation.
Assuming a saving of 0.5%, that can translate into real money.
For every $100,000 of borrowing, you could either reduce your payments by $8 per week ($400 per year), or if you leave your payments unchanged, reduce your mortgage by up to 3 year and 9 months.
These calculations assume you have a 30 year mortgage, but in the end you should work out your own savings. And the best way to do that is by using our comprehensive Mortgage Calculator here »
According to RBNZ data, there are 916,000 floating rate mortgages in New Zealand, and another 485,000 fixed rate ones.
Many borrowers have a number of loans on one property. Splitting your home loan can give you some advantages, although it does require some extra set-up cost and it also expects you to have a proper reason for the split, and to react to changes when you can benefit from them.
A comprehensive list of all mortgage rate offers is here »
Whether the mortgage market actually shifts significantly in the first quarter of 2013 will depend to a large extent on how borrowers react to the premium they are paying on floating rates.
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25 Comments
Most banks now offer 5% floating - all you have to do is ask and simply include a threat to change bank. Also easy to get two years fixed at sub 5% but why would you fix for 2 years when rates are likely to stay low or drop even further. Expect to see special low summer rates released later in January as banks prepare to fight for business targetting the Feb/Mar/Apr real estate sales flurry.
We have an entrenched economic dependence on a continuing flood of cheap credit into a price bloated property sector and nobody in the Beehive gives a rats about it.
Labour are likely to take office on the back of unsound promises to build houses below cost for anyone. Only fools and Horses would believe the promise is an absolute....NZ is full of fools.
Wheeler is close to being forced to raise his blunt tool in an effort to slam the door on the property bubble..too late...again. He will....and even a weeny teeny rise will tear the flesh off the marketplace activity, which is best judged by the 'high street' sales battles going on.
The flesh will fly as we approach the next electoral farce....got your bucket of mud ready have you?
Yes, if Wheeler does, I think he (and us) are going to come unstuck really fast, as it will probably tip us into a serious recession. Ergo I cant see that he can ro will, but then doing insane things due to dogma and blinkers isnt unknown is it.
2014 will be interesting, Labour still seem to be nowhere so will the Green's hold their 11%? beginning to think it wasnt a one shot myself....so the thing will be National's losses...
regards
and the choice is what? Yes I suspect National will lose this time, trouble is the replacement will almost certainly be worse if its Labour on its own. If its Green's and Labour which is most likely, will that be better?
None know or will say what needs to be done, so nothing will be done, so will be overtaken by events.
regards
The point is that no one knows what will happen, and anyone who thinks that they do, does't understand what's happening offshore and temporially holding markets together - the eventual consequences of that, and its only the timing thats the issue for me, is that any typical NZ first home buyer who can't afford 8% mortgage rates, shouldn't be buying. The big plus for them in holding off is that many others will buy when they can't meet that requirement, and consequently the "hold-offs" will end up with some bargin opportunities in the future - the problem is, how long do they have to wait ? I'd be patient.
I agree with you but I come from a different angle. Personally I cant see 8% retail mortgages in the next few years or indeed into our future. By that I mean its possible some crazy raises the OCR to say 6%, but doing that will crash our economy forcing a severe cut back to <2.5%....so as a trend no. Actually I think the OCR will be 2% on average and not go past 4% again...
When you look at 8% however what that really entails / means is lack of affordability or the ability to pay. So what I expect to see is wages under severe pressure and maybe even wage cuts. Otherwise more likely is wages are "sticky" so with that increasing un-employment forcing ppl to change jobs at lower salary.
The "bargins" are actually the nightmare for us. Severe price drops (10%+) mean our banks books now hold "assets" of less worth than was paid so they are insolvent. I wonder how long it would be before we (as in our Govn) is forced to step in and bail them with capital injections. Im just hoping the "open doors policy" makes it into force first.
regards
Steven, maybe the 8% is at the extreme but I guess what I'm anticipating is a similar situation to what happened in the 2nd half of the 1980's when mortgages rates went to 20% plus (in this case though, I'm only talking less than a third of that) i.e. rates went up due to a need to crush inflation notwithstanding the fact that it would also crush the economy - i.e. similar to what Volcker also knowingly did in 1980 in the US.
Yes no sign of inflation here for at least a couple of years (2-5 ?), but NZ will import it when the global money printers start impacting commodity prices again, and when they do, it will be eventually crushed again (I'm talking much more modest inflation than the 80's for us). Eitherway, the NZ housing market won't handle it as you say, so that's where I see the bargins coming from, but again, how long away, possibly 2-5 years ?
Again from my point of view I think of affordability in what ppl have to pay. So the impact of 8% you suggest and even 20% is similar in impact if enough ppl have to take jobs that say pay 20% less, or if one of the 2 adults lose their job, ouch, in a depression/ severe recession that is possible. From both our points of view the impact is the same, less money in ppls pockets, less to spend. So same end point (pain), different paths.
I agree that commodity prices can rise, assuming all else is equal. What can depress prices is a recession and lack of demand....so its the NET effect. For me its just so complex its hard to determine. I think the specualtors are only going to try and hedge the market if they are highly confident that the demand is permanent, otherwise I dont think they will play....
The problem of commodities rising is then of course is the inflation is being pushed onto our economy and taking money out for no more and in fact probably less goods. That happens if ppls wages do not rise to compensate for the pushed in increases. Look at consumerism, its 60%? ish of our GDP, so retail....I would suggest that if commodities ie food rise a lot the impact on retail is going to be very severe.
How long away I do not know. From a peak oil perspective dropping off the output plateau is 2018 at the latest....2013~2015 most likely....what will that do to prices? When the event starts will it take 3 years to bottom? 6 years? will we drop 10% per year? or 25%? how far will the drop be?
Bargins, let say the price is a lot less than today, say 75%. I assume that there needs to be a return but what if ppls ability to pay is just as badly impacted?
For me the thing is the human aspect....its strikes me as un-calcuable....
regards
Interest rates will keep dropping or at worst stay flat.
Scaremongering at 8% has penalised first homebuyers who could have bought back in 2008/9 and paid 1/4 of their mortgage by now at current rates.
Don't fix for more than 6 months - there will be no return to normal economic levels/operations for some time to come. Do you think the USA & EU & other global problems have been solved? The entire financial house of dominos is only just managing to hold together on a daily basis.
Floating remains Fixed. (where is the floating part of 'floating?!)
While Fixed rates keep 'floating' to entice the gullible & unwary!
Quick, panic - rates may go up due to amazing inflation of .2%.
Let us tempt you with enticing fixed rates just a little lower than floating - We need you to fix for 3 years - then we have you locked in with us for 3 years, & we can whack you with a $10,000 "break fee" for selling or repaying (heh heh).
8%. Very unlikely. But if I had large debt as I once did. Then I would be very concerned. Sleepless in fact. Because is 8% is possible.
If somebody had just bought a property in Auckland at those amazing prices, and at a repayments level they could only just afford then it is very thin ice. I don't expect Auckland prices to plunge not do I expect interest rates to rocket. But they could.
And a 3 year fixed rate is not much help if you are locked into a 25 year treadmill.
Steven - I think we're in agreement here, and yes 8% will now be like the 1980's 20% to many mortgage holders. It a sad thing as its clearly coming plain as day. When we do get that inflation inspired interest rate rise, which will come regardless of the economy's ability to handle it, many borrowers individual unprepareness to handle both the higher interest rate, and commodity prices, will eventually collapse demand, and prices with it.
Unfortunately there are far too many like Mortgage Belt who clearly don't understand the risk, because they can only seem to look out 12 months, think everything is a conspiracy to trap him, and fail to see the big picture two years plus further out. Maybe Mortgage Belt personally can because he's comfortably positioned, but many exposing those wishful thinking views are the types that regretfully may not be in a position to withstand that initial spike, and will be some of the sellers into the collapse in house prices (10 - 30% who knows ?)
Also what was the LVR then compared to now? 80% and 25 years v 95% and 30 years?) and bank leverage....10 to 1 now 30 to 1?
I dont see it as inflation but what you have to pay out of what money you have left, so its sort of even worse. At least with inflation the house price should climb, with deflation but also wage decline your wages could fall yet the debt remains.
Personally I think we will see huge drops first and deflation, so money printing will happen...when it bottoms out then yes I think there is a huge risk of significant inflation....10% per annum wouldnt seem crazy. The Q is where is the bottom and how long to get there.
regards
So Grant, are you suggesting there could be a downward correction of 10-30% in Auckland?
Anytime soon, or are you talking about 3-5 years down the track? Because until then Everest seems to be the limit with Auckland property! When a market correction does come do you really believe a 30% dip is possible, given the dynamics driving the Auckland juggernaut - I think not, 10% possibly - and only then in less desirable suburbs and coming off the record gains it won't seem like a 10% hit anyway.
Auckland property will always be the fastest to bounce back, if and when that correction takes place. Until then it's going to take at least 5 years to play catch-up on demand and supply...so to expect such a doomsday for our quarter-chunk of NZ could be a long wait to come...?
Uh well...your commenst strike me as wishful thinking. Some of the estimates I have seen suggest 60% drop isnt OTT over the next 20 years even 75%. ie a Japanese scenario or worse.
Auckland is about 6 to 1? right now, Sydney got to 9 to 1? can Auckalnd do that and remain there? or 12 to 1 and remain there? just who will pay these prices? and in turn be able to demand the wages needed to meet it off employers? Who will be able to afford the rent?
I just cannot see it.
regards
Its 5.5 : 1 at the moment and falling SLOWLY - however affordability indexes show it no less affordable compared to the 1990's due mostly to the much lower mortagge rates currently. But your point is, if rates rise before the economy can handle it (e.g. that ratio is still above 5, and well above its long-term average around 2.5), there will be alot of damage in which case my guess may be way too optomistic - its just a matter of the timing, but if it starts to happen within the next two years its a major problem
The key is the phrase in the article "For every $100,000 of borrowing, you could either reduce your payments by $8 per week ($400 per year), or if you leave your payments unchanged, reduce your mortgage by up to 3 year and 9 months"
If people are holding their repayments up this puts real pressure on the banks, because as the repayments increase the amount the banks have to lend increases each month to keep up their lendings. The posters on this site are very Auckland centric but in most places in the country prices are static and the banks dont even gain (bigger mortgages) when people move and upgrade.
There is also a question whether the Auckland market is driving increased lending. There is some hint that buyers in Auckland are (chinese) cash buyers and the present owners (like Mr Hickey) are cashing up, paying off their mortgages and buying debt free. This is not good for the banks because they are gaining cash but losing a credit worthy borrower.
Static property prices (excluding Central Auckland, and Chch where prices are being driven with insurance cash, not increased borrowing), dropping interest rates causing faster repayments (the real drop was people going off 8% fixed) is going to put real pressure on interest rates.
EN - Yes, but although I'm talking NZ averages, certainly it would make sense that if 30% did work out as an average across the country, Auckland would be at the lower end and perhaps in the 10-15% for all the reasons you rightly mention. Timeframe wise, yes since inflation isn't an issue even in NZ for at least the next 2 years to my mind, it would take another year of more of higher than expected rate rises in response to that to impact the market.
So realistically we probably would be talking 3-5 years away, but 2-4 if some of the more accurate commentators pre-GFC are correct about the early spped at which they expect the likes of the US to start being impact by inflation - none of us know for sure, but we have to be really cognisant of the risk
Neville I think in the short term thats a possibility but solely because bank funding spreads will be falling somewhat while europe manages to stay afloat - but watch out if there's another break-out from there, although I suspect not this year. But in the medium to long-term bank margins are playing at the margin in terms of whether rates go up or down, the bigger impact will be what happens to the OCR, and more importantly and earlier, what happens to swap rates which underpin the fixed rates.
This is the same discussion that happened in 2008/9. This time there wont be the pressure of NZ banks getting funding from the short term European wholesale market due to the lack of funding pressure and the longer term financing the banks (pressured by the RBNZ) have undertaken. The OCR only affects actual funds borrowed from the RBNZ. If there is no pressure to borrow the OCR becomes just an indicator.
There is also the 'safe haven' aspect of NZ that may draw in funds if Europe goes pear shaped.
Yup but 2009 was nearly 4 years ago now, and many multiple trillion of fiat currency has been issued since then which is the reason that bank funding spreads have topped out - but when that cash eventually flows into the market in greater volume watch out on the inflation front in those countries, and particular in the US who's currency most commodities are rpriced in for all of us.
The OCR isn't going lower, the bank bill rate will remain 20 point above that all other things being equal, the curve could flatten a bit more from here with regards the fixed rates, but the balance of risks is to the topside, the question just remains when? And if we're wrong on Europe this year, then don't expect bank funding costs to see much downside even although we may get a OCR cut or two in that event - risk/reward I know which way I'm playing it - bigger risk takers will play it their way
The typical scaremongering by banks urging borrowers to fix is losing it's effect. Noone really believes interest rates are suddenly going to hike up given the very precarious and fragile state of the economy. Borrowers have heard it all before. 2009, 2010, 2011, 2012 - for 4 years we have heard the drums beating of "better fix - rates are going up & really fast too". Wrong, wrong, wrong - rates went down (other than a foolish hiccup by AB which just about stalled the economy with 1 little hike).
The other attitude now is - well if the global economy is going down the tube - then bring it on - the Govt, RB etc are unlikely to let every household & small business default. Will a 2 year fixed rate really buffer you? Given that NZ-ers not only pay the highest interest rates in the world, but also are unable to fix for the life of the loan - as in the USA.
At the first sign of significant bad news globally or in NZ/Aus in 2013/14 then watch for more cuts....
You know, scaremongering tactics are the cheapest and most effective way of spiking bank business - we are are all driven by our fears - and the fear of loss is a very powerful driver as it's very much linked to the fear of death - the driver of all fears.
As we all know, this is a big game of tactics and psychology is always at the core. You can bet the banks have members of their marketing team who are in fact sociologists/demographers and behavioural psychologists who are there to sniff the wind and look for weaknesses in our collective psyche. They need to either pre-empt the mood of the day or attempt to create it - and fear works....except of course with sceptics like us!
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