Recent 'hoop-la' regarding fixed mortgage rates looks at odds with the Reserve Bank's latest assessment of where interest rates are headed, after the central bank this morning implied the Official Cash Rate will remain 'lower for longer,' ANZ economists say.
Westpac chief economist Dominick Stephens last week said wholesale swap rates, which help dictate the level of fixed interest rates in New Zealand, had risen sharply in February. If these higher swap rates were sustained – "and we think they will be" – fixed mortgage rates would at least stop falling, and could even begin to rise, Stephens said.
"That makes now a very good time to fix," he said, adding fixed rates with terms of two to four years made sense.
At the time, ANZ chief economist Cameron Bagrie said it was still too early to call whether there was much of a difference between floating or fixing.
“I wouldn’t be in a mad rush to get locked into a higher rate. If interest rates are moving up, it will be because the economy is on a stronger footing. That’s the central scenario, but it’s far from guaranteed. I would encourage people to be careful,” Bagrie said last week.
The Reserve Bank this morning cut its projected 90-day bank bill track by 70 basis points - it expects a 90-day rate of 3.3% in March 2014 rather than the 4% it projected in December - and pointed to a 90-day rate of 3.6% in the March 2015 quarter, implying an OCR of 3.25-3.5% at that time.
In their analysis of the Reserve Bank's latest forecasts, ANZ economists said the bias for the OCR was still up, but not until late 2012 at the earliest.
"We see the OCR eventually hitting 4 percent, but not for a few years. We are set for an elongated period of low interest rates," they said.
"Borrowers still have time on their side as they weigh up the attractiveness of floating versus fixing. While the decision to fix or float is partly dependent on individual circumstances, recent hoop-la regarding fixed rates looks at odds with the RBNZ’s OCR assessment," they said.
'Little incentive to wait'
BNZ chief economist Tony Alexander said later on Thursday that those wanting to fix, could, as the gap between floating and fixing was as narrow as it would get.
"The outlook for NZ interest rates remains low but the gap between floating and fixing is as low as we think it will get so those wanting the security of fixing have little incentive for holding off – even though we do not expect fixed rates to shoot up to any major degree in the next wee while," Alexander said in his Weekly Overview on Thursday afternoon.
(Updates with Alexander's comment, added word help in 2nd par)
9 Comments
Hey nzinvestor, that is a really good rate! We've had a $850,000 mortgage that has been whittled down over the past 5yrs to just over $500,000, never jumped ship as our captain, BNZ, prided itself in having the lowest rates and was willing to deal as well. But their ship has sailed and I notice better deals in almost any other harbour. I would gladly sling my hammock from another deck, just a matter of which !!
cheers, Naive
The BNZ rates over the last 10 years havent been as attractive as other lending institutions. I know amongst my friends and family that it tends to come down to complacency when determing whether they stay or look at changing banks. "Why change when I am managing"
With a mortgage of $500K, you are an attractive proposition to any lending institution assumming you have the means to service the loan.
You really do need to take time out, assimilate the information that is available, and above all else seek help and be prepared to listen to advice from those that can help. Unfortunatately we as males seem to have A "i KNOW THAT ALREADY" mentality and dont like to ask for help.
Get out there and save yourself 10's of thousands - just make the move, and I am sure you will say "why didnt I do this ages ago"
cha cha
Ultimately as we all know interesrs rates will increase, it really is a matter of being aware of market indicators and moving at the right time. We all know this isnt necessarily an easy thing to do. Bank economists, economic comentators and the Reserve Bank all seem to be at odds as what is likely to happen in the short term, and although Banks are having to pay more to borrow form overseas, they are still flush with funds.
Personally I see the Banks as being in somewhat of a precarious position, as they like their customers are waiting for that opportune moment when they will increase their rates. It really is for the banks a matter of managing the collateral damage when they do move, particularly wiith a number of them announcing massive profits of late.
My view is sit tight for the next 6 months. The Reserve Bank Governor has indicated things are not likely to change in the short term, and the Banks will want to be seen as being a socially responsible entity, as opposed to a greedy glutanous beast
cha cha
Banks are not altruistic businesses and should not be trusted .... ever . They only ever look after their own commercial interests, just like any other profit driven business
And right now , Bankers want you to fix , it gives them certainty when they need to "match " their book, and the prospect of really good margins if their funding costs fall , as they may do
Simply , Banks will profit from you if you fix and rates fall further. Remember rates could actually fall further if some of the newly- printed -almost -zero -interest Euro money starts washing up here
I am not fixing , as I beleive that rates will stay low or fall over the next 18 months .
People should rather use this period of low rates to pay down the Capital portion of their mortgages and other debts while they can afford to .
Indeedy indeedy indeedy - Wouldnt trust em as far as i could kick em. They arent dum. They sit there in the wings hoovering like vultures waiting for tthe right moment to move. Bank economists expounce they veiws readily, as a pre cursor to lessening the blow when they do actually increase rates. But like their customers, they are there trying to work out when to move.
Just be onto it - dont believe what you always read, and educate yourself so that you have a self forming understanding of the narket, and dont be one of the many lemmings who jump to the mercurial tunes of the piper (Banks)
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