We’re now well into the New Year and the staff and economists at the banks are back behind the desk – so what are they doing, and where do we see interest rates going?
So far not much has happened.
Yes, we’ve seen a couple of the banks make some adjustments to their interest rates, but really only to bring them inline with what the other banks are offering – they are all much the same at the moment – a fixed rate of 5.99% for 6-months, 5.59% for 12-months and 5.59% for 5-years. If the banks are not quite offering this, we are generally seeing them match these rates when pushed.
We’re starting to hear a bit more talk about the OCR announcement that’s coming up on the 19th February, but basically just saying to expect a cut of 0.50% still.
There was some concern that the US Bond markets had started to increase as this is what the banks in New Zealand base their funding on; however that has since dropped again and was described as a ‘wobble’ rather than a trend to be concerned about.
There is a Monetary Policy Statement on the 19th February too and that’s really what most people in the financial world are waiting for. This is the biggest indicator on what the Reserve Bank is thinking, and the expectation is they will be concerned with the lack of performance in the New Zealand economy.
The biggest problem is everyone is basing the expectations on historic data which is pretty negative still, but there is not really any feeling around the place that things have gotten much better so we still believe that the economy is not doing well.
So what about mortgage rates – what are we thinking?
At this stage there is not much to suggest any change, and therefore we still expect the Reserve Bank will drop rates by 0.50% in February and then another 0.25% in April. If they have real concerns with the economy they might look at a bigger drop of 0.50% in April and possibly another drop in May.
With this in mind we are suggesting:
Either just fix for 6-months at this stage and review again then with the hope that rates have dropped, or leave on floating for a few weeks until we know what the Reserve Bank does and then what the banks do in response.
If you plan to let your loans go onto a floating rate then make sure your mortgage adviser negotiates a discounted floating rate for you. Don’t let the banks make too much money!
Review your financial situation and the way you have your loans structured – splitting your loans and using offset loans are good ideas and can allow you to take maximum advantage of lower home loan rates. Also make sure that you tidy up any more expensive debt too.
