The Reserve Bank maintained the Official Cash Rate last week at 8.25% but some economists believe that a further increase cannot be ruled out. Most say that even if there are no further rises, rates are stuck on high for many months to come, if not another year.
Where lenders are reducing rates now they are doing so as a result of their ability to secure cheap funds so they can promote attractive deals during the spring house-buying season. Seasonal marketing campaigns remain far less aggressive than in previous years. Meanwhile, some lenders are raising rates on some fixed terms. It seems that the market may remain like this for some time; tweaking up and down here and there but with home loan costs overall remaining high.
There is a general view that borrowers should go for two and three year fixed rates. Borrowers who fix for shorter periods face higher rates than over two years and the possibility that rates will be much the same as they are now, or even higher, in a year's time. A one-year deal may work well, but this would be on the assumption that borrowing rates, in general will start to fall within that period. There is always the option to hedge bets by spreading borrowing over more than one term.
At present there is a clutch of lenders all charging 8.99% for two year money: NZ Mortgage Funds, Kiwibank, BNZ (on its Classic product) BankDirect and AMP Home Loans on mortgages of $200,000-plus.
By contrast the lowest one-year rate, from Silver Fern is 9.15%.
Five year rates remain lower than shorter terms, but even so the lowest at 8.65% from AMP on a $200,000-plus mortgage is only 34 basis points lower than the best two year rate.
While a five-year rate offers security to those on tight budgets, the borrower risks missing out if the interest rate cycle turns within a half-decade.
Rates are not the main story at the moment for borrowers with non-standard credit profiles. Lenders have become much more cautious about lending they think may carry risk. Borrowers with imperfect credit histories face higher costs and may not be able to obtain funds at all. Lenders are also shying away from some property investment deals.
There is still life in the market, however. Lender eMortgage, part of the General Finance lending stable, has announced that it will expand its mortgage range next week through the addition of a new funder, Calibre Financial Services. eMortgage is a shareholder in Calibre which is a New Zealand based and operated wholesale mortgage funder that will offer a number of niche mortgages products.
