Another Official Cash Rate Cut

The Reserve Bank announced a further cut to the OCR of 0.50% taking us down to 3%. Further good news for those with mortgages.

We noted 2 months ago the ASB’s home loan 5 year fixed interest rate at 5.95%, and that one should be considering locking some debt in at that rate.  We had hoped that the ASB move would have pulled the other Banks down to similar levels. This did not eventuate and subsequently ASB raised their home loan 5 year fixed interest rate twice. It now sits at an above market 6.75%.

As a result, we have increasingly come to the view that now is that time to be locking in some long term debt. The 5 year swap rate market seems to have stalled somewhat, after falling off a cliff the past few months. Banks are aware that there is a large chunk of the market that have recently come off fixed interest rates who have been holding off re fixing in an attempt to pick the bottom which leads us to suspect that they may not have a desire to discount these long rates. We suspect also that recent tightening of credit criteria is limiting home refinance activities,(the movement from one bank to another) thereby reducing competition. In addition, lenders are facing increases in their cost of obtaining funds to lend in the form of, increased margins on funds from offshore, the fee for using the government guarantee, and rising deposit rates here in NZ.

As such home owners, who have no intention of selling in the near future, could lock in half their floating mortgage debt now to a long term fixed interest rate, safe in the knowledge that they have received a historically good home loan rate. This allows the possibility of fixing additional debt in the near future if rates were to fall further, and has an added benefit in that you have now split your mortgage, so that regardless of future interest rate moves, not all of the mortgage will come up for renewal on the same day. This protects you from all of your loan rolling onto a substancially higher interest rate on one day in the future, and having to take, that interest rate on the day.  As independent brokers we are always working towards your future.

If your lender provides a no cost “rate lock facility”, then one could secure the interest rate now for implementation in 60 days time. Given that Floating home loan interest rates are now below the 5 year fixed rate , you’ll eke out a few days on a lower interest rate, but with the certainty of a long term fixed interest rate coming shortly.

Our caveat is that further worldwide financial deterioration, raising the possibility of the US Government printing money, forcing up the price of long dated bonds, and thereby providing for a cheaper borrowing cost to our banks for the money they require from offshore.  However if one is glued 24/7 to CNBC waiting for this to happen then you’ll be ignoring what i say anyway. 😉

We note the silence of Kiwibank, who has up until now, been very quick and vocal in leading the way with rate cuts.

As always, get in touch to talk through your re fixing requirements.

UPDATE: 24/3/2009  Well low and behold a couple of days after our post The Fed did announce the crank up of the printing press.  This is the creation of paper money (actually they are doing it electronically) to increase banks capital with a hope of them increasing their lending. The word we received 2 days ago from someone trading the treasury markets was that this had merely stalled the rise in the 5 year swap rate yield curve.

The feedback we have received from the Banks over the past few days is that there are a lot of customers who have been re fixing their mortgages at the long term interest rates prior to the cutoff period for the recent rises in 3,4 and 5 year fixed interest rates. This adds pressure on these long terms rates due to demand.

The overnight rise in the DOW of 500 points on the back of a  US Treasury announcement to facilitate the buy up of a $US1 trillion of toxic assets has today added 0.11% onto our 5 year swap rate.  This is due to investors taking their money from the perceived “safety” of the bond market (ie: selling bonds and treasuries, leading to rises in interest rate yields) and moving their capital into more “risky” assets such as stocks.

Long term interest rates are to a large extent based on peoples expectations of the future, which helps to explain why these rates are rising now, despite the here and now in NZ commentary, remaining a little gloomy. “The market” is currently believing prospects for the future may be looking rosier.

We remain comfortable with the strategy of locking in some long term debt now dependant on individual circumstances.

UPDATE:30/3/2009  How rapidly rates have changed.!! There have been substancial moves in the 3,4 and 5 year fixed interest rates.  Market demand has driven these up so rapidly that the ASB (as an example) raised their rates on Thursday only to raise them again on Friday night. The 5 year rate now sits at 7.50% and the 3 year rate is now 6.75%.  The sudden and dramatic move in the 5 year rate has been sufficient to now make us question locking in this rate currently. We prefer a wait and see approach now. We suspect the Reserve Bank will not be overly happy about such sharp increases in borrowing costs, leaving open the possibility of a “market” jolting move or wording come their next OCR announcement on the 30th of April.

ASB raises long dated home loan fixed interest rates

In one week ASB’s 5 year fixed home loan interest rate has gone from 5.95% to 6.50%. This shows the vagaries of making interest rate predictions.

The 5 year swap rate, the cost to the Bank of borrowing funds for 5 years currently sits at 4.10% (the 10 year average by the way is 7%).

A lovely margin of 2.40%. 

This is an example, as confirmed by the recent reporting season in Australia, that the major banks here have been increasing their margins.

 

Official Cash Rate cut by a further 1.50%

The cut today of 1.50% has followed on from the 1.50% cut made in December.  The Reserve Bank has moved rapidly to lower borrowing costs.

Westpac responded immediately and their home loan 3 year fixed rate now sits at 5.99%.

This has been trumped by ASB later in the day who are now 5.95% across the board from 6 months through to 5 years fixed.

While many of us are waiting, including your mortgage broker to see how low rates will go in an attempt to pick the bottom, those of a more conservative nature and dependant on personal circumstances, could be looking at locking in a portion of debt for the longer term now, with the remainder floating till the next Reserve Bank announcement on the 12th of March.

As always, get in touch to discuss your rate re fixing requirements. 😆

Official Cash Rate slashed by 1.5%

The Reserve Bank today reduced the Official Cash Rate (OCR) from 6.5 percent to 5.0 percent.

The banks who have moved in advance of the cut the past couple of weeks are now likely to revisit their home loan interest rates, with further cuts to floating and short term fixed interest rates possible.

For the first time that i can remember the Governor also provided a stab at the banks with the following.

“To ensure the response we are seeking, we expect financial institutions to play their part in the economic adjustment process by passing on lower wholesale interest rates to their customers.”

Hear, Hear.! 

Aussie cuts their interest rates by 1%

The RBA in Australia has today cut rates by a full 1%. This is the 4th cut in as many months and equates to 3% in cuts since September.

CBA Bank, announced immediately they were passing on the full 1% to customers.  CBA is the owner of ASB Bank, Sovereign and Bank Direct here in New Zealand.

Our Reserve Bank has some catching up to do and we are picking at least a 1% cut in our OCR on thursday.

Home loan Interest Rates Succumbing

With some economists picking a cut in the official cash rate on the 4th of December of as much as 1%, home loan interest rates have started to come down in anticipation.

Westpac lead the way yesterday with their 6 month fixed interest rate now at 7.65%.

ASB is following tomorrow with a 6 month fixed interest rate of 7.35%.

great news for mortgage holders :-0

Official Cash Rate Cut by 1%

9.15am 23/10/08 The Reserve Bank has slashed the official cash rate (OCR) this morning by a full 1%.

He has also indicated a bias towards further rate cuts going forward.

He noted “New Zealand can expect to face lower demand for exports and credit is likely to be less readily available”.

Under normal circumstances one would expect home loan Floating interest rates to drop by 1% forthwith.

Lets see what the Banks actually pass on to customers.

11.45am 23/10/08  ASB Bank has announced rate cuts across all fixed interest rates.

The most notable being 6 months fixed down from 9.25% to 7.99%.

Unusually there is no change to their floating interest rates though.

6.20pm  ANZ has announced fixed interest rate declines. But also no change to their floating interest rates.

Westpac announced a floating interest rate decrease but no changes to fixed interest rates.

Kiwibank has cut their home loan interest rates across the board.

We expect some further jockeying for position over the next week amongst the banks.

5pm 24/10/08 ANZ have followed up today with full 1% cuts off floating and revolving credit interest rates.

1% Aussie rate cut

The Reserve Bank of Australia has this afternoon cut its official cash rate by a full 1%. This was an unusually large move and unexpected by the market.

Our Reserve Bank has an OCR announcement on the 23rd of October. A rate cut here is now a certainty. By how much is the question.  The reality is that NZ is officially in recession and as such it could be argued aggressive rate cuts are required here, as opposed to Aussie which is not officially in recession.

A smart move, to restore confidence in our markets, may have been to co-ordinate their forthcoming expected rate cut with Australia’s move today.

Interestingly Glen Stevens, the Aussie Reserve bank governor has been actively in the press in Australia recently applying public pressure on the banks to pass on the rate cuts to customers. Conversely here in NZ there is remarkable silence on the issue from anyone in a position of authority. Why.??

The July 24th rate cut here was not passed on at all to home loan customers. 

In addition most revolving credit facilities (which i would expect would be the majority of floating interest rate loans in New Zealand) only received 0.25% of a cut from the 11th of September drop in the OCR of 0.50%. And further if your an existing customer with one of these facilities you are probably still waiting for this benefit as most of the banks haven’t passed this on immediately.  ANZ for example is not applying the cut until the 10th of October for existing customers.

The bottom line is…if you have a home loan coming up for re-fixing in the near term, do nothing until after the 23rd of October.  Floating interest rate rate adjustments will then be known quite quickly but it can take a few days after the announcement for drops in short term fixed interest rates to come through once the banks have jostled amongst themselves.

😯

Home Loan Criteria Tightening

Due to current market conditions there have been a number of reductions in levels that lenders are prepared to lend to. It has mainly been with the “Low Doc” or “No Financials” variety of loans.

In addition “servicing criteria”, an applicants calculated ability to cover the monthly cost of a loan, has been tightening too.

Some, but not all, are as follows…

ASB low doc was 80% this changed last Friday to 60%, and we have just heard that as of today its now zero %…IE: no low docs!

UPDATE 3.30pm ASB is restricting all housing lending for new customers to 80%

Westpac low doc was 85% now 65%

In addition some lenders are showing reluctance to lend on apartments, unsurprisingly given the recent waves of negative publicity.

Sovereign, a lender we have regularly used for apartments in the past, won’t currently lend anything on an apartment in a building with more than 3 floors.

Kiwibank is also not doing low doc loans on apartments.

Still a round of tax cuts went into your paycheck on the 1st of October, so it isn’t all bad. 😆

 

PH: 0800 2 FINANCE. Auckland Based Mortgage and Insurance Assistance Since 2002