With little few changes in home loan rates recently much of the focus at the moment is on where rates are heading.
This theme has been strengthened since the Reserve Bank’s official cash rate announcement last week. As expected the bank’s governor left the OCR unchanged at 6.75% and the tone of it was slightly softer than in previous announcements.
This has led to speculation that the next change – whenever it comes – will be a cut in rates, thus lower home loan rates.
However a number of economists are warning people not to be presumptuous about a pending cut. The picture emerging is that a cut – when it comes is still many months away, and in the meantime don’t rule out the possibility of yet one more rise.
As one economist noted rates go up quickly when the OCR increases, but are slow to come down with the falls.
Generally rates are sitting above their historical averages.
One of the reasons why there have been few significant rate changes in the past couple of weeks is that the interest rate market has remained reasonably static.
As noted the OCR remains the same, which would mean no movements in floating rates.
However, Public Trust defied that rule last week when it cut 15 basis points off its floating rate to bring it down to 8.75%.
"We are building up our home lending business and this competitive rate signals to the market that we are looking for business,” Public Trust chief executive Pat Waite said last week.
While the floating rate is lower than the main banks and Kiwibank, it is not the lowest in the market.
Longer-term rates are influenced by the offshore money markets. These too have been quiet but there are decisions due soon from the Reserve Bank of Australia, Bank of England and European Currency Board.
Any changes here could move rates in New Zealand.
What’s the best deal?
In terms of duration – that is what term your loan should be – there is a range of views. Westpac says fixed for 12-18 months so you can refinance when rates start falling. Bank of New Zealand says fix for two to three years, while ASB says fix for “two to five year fixed rates would be useful, especially for lenders with little tolerance - financial or psychological - for any upward interest rate shock.”
With fixed interest rates flat in the market there is little difference between standard rates on offer, but there are still a number of special rates around.
Discounting is most prevalent in the two to three year fixed rate market and Kiwibank is still offering its five-year rate of 6.99%.
