All posts by Jason

Sovereign Raises Fixed Interest Rates Across The Board

In somewhat of a surprise move ASB Bank has today tested the home loan fixed interest rate market through its subsidiary Sovereign by raising home loan fixed interest rates across the board.

1 year fixed goes from 5.95% to 6.15%. 18 months fixed goes up a whopping 40 basis points from 6% to 6.40%. And even the 5 year rate gets a tune up from 7.60% to 7.75%

Given last weeks OCR announcement, rises in short term home loan interest rates would not have been particularly surprising. Rises in them all, from 6 months through to 5 years fixed, is however and It shall be interesting to see if the major lenders follow.

UPDATE: 09/08/2011

Having been left out in the breeze by the rest of the market, which did not follow ASB and Sovereign in raising home loan fixed interest rates, a u-turn has occurred and notification of home loan fixed interest rate decreases is just through. 18 months fixed is cut from 6.40% down to 6.10% and the very surprising rise in the 5 year rate from last week to 7.75% is now trimmed down to 7.40%, below where it was before last weeks rise.

With global financial markets getting spanked the past few days on growth concerns we hold no inspiration to move from a floating interest rate.


Official Cash Rate Unchanged

The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 2.5 percent.

Reserve Bank Governor Alan Bollard said: “Provided current global financial risks recede and the economy continues to recover, the Bank sees little need for the March 2011 ‘insurance’ cut to remain in place much longer. The current very high value of the New Zealand dollar is acting as a drag on the New Zealand economy. If this persists, it is likely to reduce the need for further OCR increases in the short term.”

90 day bank bills have crept up to 2.82% today from 2.76% yesterday and up from the low 2.60’s a couple of weeks ago.  What this tells you is that the interest rate market is pricing in a raise in the OCR in the near future. Your home loan floating interest rate is therefore likely to go up.

By how much, and how frequently thereafter that first raise, well; given the current global financial trevails we shall leave that prediction to those capable of operating crystal balls.

At auction yesterday this commercial building on Mt Eden Road sold for $2,100,000 at an approximate yield of 7.36%.

ANZ Eases Home Loan Lending Criteria

Following on from our post describing ASB’s recent easing of home loan lending criteria, the ANZ has recently had an easing of their own in the area of over 80% lending.

The ANZ, assisted by their ownership of National Bank, are the largest player in the market, and the changes made make it easier to get a low deposit home loan lending proposal approved. As an example, a loan can now be measured over a 30 year term, up from a previously limiting 20 – 25 year loan term. The positive net affect for those needing a low deposit home loan is that the same amount of income will now support a larger loan amount. Once again we see restrictions, that had been put in place as a result of the GFC and its general malaise, being lifted.

At auction today this “do up” villa on 405 sqm @ 37 Third Avenue in Kingsland sold for $692,000.!!

Official Cash Rate left on hold

The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 2.5 percent.

Reserve Bank Governor Alan Bollard said: “As GDP growth picks up, underlying inflation is expected to rise. A gradual increase in the OCR over the next two years will be required to offset this, such that CPI inflation tracks close to the midpoint of the target band over the latter part of the projection. The pace and timing of increases will be guided by the speed of recovery, but for now the OCR remains on hold.”

The OCR has an influence on your home loan floating interest rate. Its not the sole influence, but it is significant and as such your decision whether to fix or float your home loan, could in part be decided by how well you feel the economy is tracking along.

In our view there doesn’t appear to be much in todays statement that suggests the Reserve Bank is in any great hurry to raise. At the time of writing there have been no movements in home loan interest rates that have come through as a result of the statement.

ASB Eases Home Loan Lending Criteria

In the past couple of weeks we have noticed senior bank staff in the newspapers indicating a willingness to lend. Further evidence of this is seen today with ASB easing its home loan lending criteria. Namely they have reduced the internal interest rate used to calculate a clients home loan servicing ability, or in other words, affordability. This has a direct effect on the calculation that the bank is willing to lend you based on your income level.

Effectively your income will now support a larger loan amount today with the ASB than it did yesterday.  The bank had raised this interest rate back in May 2009 as a result of the general nervousness of that time, and its reduction today, is further evidence of home loan lending criteria improving.

Enduring Powers Of Attorney

One thing that we find a lot of folk don’t have when sitting down discussing mortgage finance to assist with house purchases, are Enduring Powers of Attorney.

Now, this isn’t legal advice, you have a lawyer for that, but we thought we would provide a brief overview.

An Enduring Power of Attorney, or EPA as it’s sometimes called, acts a bit like that computer back up that we all do regularly (did someone say “Yeah Right”) :-).

Basically it lets you appoint someone else to take care of your affairs, in case you aren’t able to, and is only used if and when it is necessary. And like that computer back up, they are very very handy when they are required. Maybe you’re overseas on that long- dreamed-of trip when something unexpected back home crops up. Or, not so good, you get sick or have an accident, which could mean you can’t cope with the complexities of signing or understanding documentation.

Who will make the required decisions, or sign the necessary papers for you? Please don’t rely on the widely held belief that your “next of kin” can do it. This is not the case – you need to have a properly appointed Attorney.

There are two sorts of Enduring Power of Attorney. One in respect of Property – that means everything you own, not just real estate; and one in respect of Personal Care and Welfare, which covers decisions on hospitalization and so on. So you could imagine that these appointments can get more important the older you are.

Of course, you’ll need to give some thought as to who might be the best person to appoint, (perhaps someone younger than you?) – Depending on your circumstances. It might be a family member, a friend, or your solicitor or accountant. You could appoint say, 2 people for property, who could act either separately – one or the other, or both together – so as to give you more security and peace of mind. However, you can only appoint one person to act at a time for care and welfare.

A Power of Attorney stops operating when you die – that’s when you’re Will kicks in – but we might talk about that another time!

Enduring Powers of Attorney are standard legal documents, so you’ll need to get in touch with your lawyer if you’d like to set them up. Most of you that we will be seeing will be visiting your lawyer anyway for signing of mortgage and land transfer documents so why not attend to this at the same time. Give it some thought, eh?

Official Cash Rate Unchanged at April Meeting

The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 2.5 percent.Reserve Bank Governor Alan Bollard said: “The outlook for the New Zealand economy remains very uncertain following February’s Christchurch earthquake.”

And he followed that up with, “Given the outlook for core inflation and continued economic disruption stemming from the earthquakes, the current level of the OCR is likely to remain appropriate for some time.”

The effect is that home loan floating interest rates are likely to remain as they are for some time. And your guess is as good as ours when it comes to deciphering exactly how long “some time” is 🙂

In an historic first time ever event, Ben Bernanke the U.S Federal Reserve Chairman, provided a question and answer session overnight after his meeting. In the session he repeated earlier statements that the Fed would not be raising interest rates for an “extended period”.

On balance then, given what feels like a series of problems around the world currently, and a New Zealand economy that feels sluggish at best, we don’t see alot of reason to move from home loan floating interest rates. We reiterate our view however that if possible one should be trying to pay more than the minimum monthly repayment required on your home loan while the home loan floating interest rate is so low. Any extra repayment comes straight off the principle (the amount you owe) of the loan, leading to interest cost savings.