With inflation expectations dissipating, mortgage rates have again settled down and even dropped slightly. Two year rates are sitting around 4.55% and three year rates are around 4.95% depending on loan size and whether it is owner-occupied or a rental.
The election result will do nothing medium term to interest rates. Of course, we don’t know yet what Winston will do, but whatever way he goes I suspect it will result in a moderate government. Fundamentally not much will change that would impact on inflation and therefore on rates. You will have seen in my previous posts that these are driven by larger forces at play and the housing market has slowed down to take the pressure off the RBNZ on that front.
THE OCR announcement yesterday morning was no change in rate which was expected and the forecast looks benign. The RBNZ used the words that “policy will remain accommodative for a considerable period.” I also think they opened the possibility to change policy settings should construction and economic activity weaken.
Due to low house sales volumes, and low lending growth, there has been increased competition from lenders and cash backs are back on offer for Spring. Cash backs come with a 3 or 4-year obligation to stay with the lender and it’s available on new purchases and refinances.
The main driver of mortgage rates will be bank profit expectations which historically comes to the fore after Christmas. A lack of growth is going to keep the focus on margins. All things being equal, we typically see rates go up in the first half of the year as banks run into financial year end.
If you’re going to fix your mortgage, do it sooner rather than later and take advantage of the current rates and competition.
With any re-fix of maturing loans, I’d recommend the starting point is your existing lender. We’re happy to manage simple re-fixes for you and it’s just a matter of getting in touch with our team firstname.lastname@example.org or call us on 09 376 9688.
If you decided to refinance inside the past 3 years you’ll have a claw back on any cash contributions and if you’re breaking a fixed rate you’ll likely have break fees. It’s important to understand these costs before you rush into a refinance, especially when your existing bank will likely match any rate offer or at least get you close.
Refinancing should be last resort and usually for other reasons like credit policy or a top up or general dissatisfaction. We think it’s worth a conversation before rushing into it. We’ve had plenty of situations of clients refinancing and then running into unforeseen problems down the track usually around a change in circumstances.
With house sales stalling now is the perfect time to sit down with an adviser and review your mortgages and set some financial goals. Let’s make sure you’re got access to emergency funds somewhere inside the mortgage, consolidate other debts, negotiate better rates, and set your repayments a tad higher to get you debt-free faster. If you’re struggling to smash the mortgage, there are likely things we can do with your mortgage structure to make it easier for you. Talk to us about your options.
Property Investors – Review your portfolio
Rental properties continue to be treated differently by some banks and not priced as aggressively. To get a market perspective on rates, talk to one of our advisers or our client services team.
One thing we’ve noticed recently is how hard it is becoming to roll interest-only periods with some of our lenders. If you’re a property investor, could you afford P&I repayments on your current cash flow?
I personally think it’s important to review your portfolio, not only to check in on rates but to make sure you have a viable strategy should something go wrong or the rules change. Remember that since you last purchased, chances are banks have changed several lending rules. A review lets you assess where you are at in the eye of lenders is a good thing.
We are also seeing issues with the 60% LVR rule when investors go to sell properties. Banks are inconsistent with their approach, but in some situations, they are taking full proceeds from sale. If you needed to sell a property to release capital what would that do to you?