Declining fixed rates to have little effect

The recent decline in fixed mortgage rates will not have a big effect according to ANZ Market Focus.  

Tuesday, March 30th 2010, 5:56PM

Its internal data shows that very few new mortgages are being written in the two-year space and beyond, given the steep mortgage curve.

ANZ says three-year fixed rates and longer are above historical average levels and are not seen as good value. The two-year rate may still be below average levels but shorter dated fixed or floating rates remain the most attractive part of the curve.

This has resulted in a growing proportion of mortgages gravitating towards shorter terms.

"In addition, given that those refinancing in the coming months are rolling off a weighted average rate of just over 7%, fixing for 2-years or above will actually increase their mortgage repayments."

BNZ Markets Outlook says the return of interest rates, to closer to normal, will be the ultimate test for the nations debt load.

"We suspect we'll get a good sense of the sensitivity early in the process. As helpful as it's been for households and businesses to load into short-dated debt, and the relatively low rates charged for it, this simply increases the vulnerability to Official Cash Rate reversal."

Westpac Weekly Commentary looks at December Quarter GDP data released last week and says it shows the economy is tracking at least as well as the Reserve Bank which should strengthen the conviction it needs to start withdrawing monetary stimulus soon.

ASB Business Weekly says that although the foundations for a sustainable recovery such as GDP are falling into place, the Reserve Bank will need to be mindful of the need to keep inflation pressures in check while still providing the necessary amount of support to this fledgling recovery.

However J P Morgan Weekly Prospects believes the GDP data will have few implications for the near-term monetary policy outlook as more timely data suggests that the economy has shed momentum early in 2010, with a lot of steam coming out of the housing market in particular.

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