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Brother in law’s guide: Long term mortgage rates are rising again, so fixers should fix now (Updated)
April 1st, 2009(Updated on April 1 to include long rate hikes from Kiwibank and BNZ, a 6 month rate cut by BNZ, and RBNZ Governor Alan Bollard’s warning about an “unwarranted” increase in long term wholesale rates)
By Bernard Hickey
Here’s the short version. I see an extended global economic recession through 2009 and into early 2010 convincing the Reserve Bank to keep cutting the Official Cash Rate (OCR) to 2.5% by mid-2009, albeit in small chunks. This means we’re near the end of the rate-cutting cycle. Longer term fixed rates bottomed out in late February and are now rising quite quickly all around the world as governments borrow heavily and central banks print money, increasing the risk of inflation. Those wanting to fix their mortgage rates long should do it now.But those expecting lump sums (redundancy/bonus/inheritance/Lotto) or are paying off their mortgage quickly should stay floating, given the OCR could stay low for a year or two.
Here’s the long version
The Reserve Bank cut the Official Cash Rate on March 12 by 50 basis points to 3% and said it did not expect the OCR to drop below 2.5% because New Zealand needed to be competitive in international capital markets. This is code for: ‘We can’t cut rates too much more or international investors will stop funding our large foreign debts.’ On April 1 Governor Alan Bollard said a jump in long term interest rates after that March 12 announcement was “unwarranted”. Therefore, it’s worth looking at whether mortgage borrowers who are rolling over in the next couple of months should float or fix, and if they fix, for what period.
This question of whether to fix or float and now long to fix is actually quite a complex question. It requires a view on where the OCR is heading, what is happening to wholesale interest rates and what profit margins the banks may choose to impose on top of these wholesale rates. Essentially, it requires a view on the likely state of the global and New Zealand economies, along with an idea of the stability and profitability of the banking system.
Individuals will also have their own situations to consider. If a lump sum is expected in the near future such as a bonus, redundancy payment or inheritance, it can make sense to go variable rather than fixed, even if the rate is higher because debt can be paid down early to save money.
Or it may make sense to fix even though the cost is higher because a borrower wants certainty about their outgoings. Everyone’s situation is different. This analysis is aimed at a ‘typical’ mortgage borrower who wants to find the lowest mortgage servicing costs for the forseeable future. I fit into that category, having a sizeable mortgage over the house I live in, so this counts as an analysis aimed at myself and for my proverbial ‘brothers-in-law.’ So I’ll call it the brother-in-law’s guide.
Now the caveats are out of the way, let’s start.
OCR to trough at 2.5%
Firstly, let’s look at where the Official Cash Rate will go over the coming 6 to 12 months, which is about as far out as anyone can sensibly forecast. I think a 2.5% OCR is likely by the middle of this year, which would see variable mortgage rates drop towards the low 5% mark by the 4th OCR announcement of the year on June 11. RBNZ Alan Bollard was unusually prescriptive on March 12 when he said the OCR was on a ‘glidepath’ towards a bottom at 2.5%. This surprised most observers who had previously expected a 2% trough and was much more ‘hawkish’ than previous statements about having plenty of room to cut.
Bollard’s tone was more upbeat in the March Monetary Policy Statement and more ‘hawkish’ about global inflation. He is more confident than most that significant rate cuts, big government deficit spending and the lower New Zealand dollar will power a ‘fragile’ recovery in the economy later this year and then quite strong GDP growth in late 2010 and 2011 (4.6% by early 2011).
I’m a bit more pessimistic about the economy, but the strength of Bollard’s comments on the OCR bottoming out no lower than 2.5% suggest that the end of the rate cutting is near. Wholesale interest rates also rose significantly on March 12 and have kept rising since.
There are some caveats. Bollard said things could get much worse overseas, which could change his growth view. But I think the OCR view is unlikely to change, simply because we can’t afford to offer lower rates to international investors.
New Zealand is on notice from Standard and Poor’s about a potential downgrade in its AA+ sovereign credit rating unless the government can get its forecasts of rising debt back under control. Even if Alan Bollard may want to take up more of the task of reviving the economy than Bill English, he can’t.
Variable rates have further to fall
Secondly, we have seen an interruption in New Zealanders’ love affair with fixed rate mortgages, particularly the longer term two, three and five year versions. One reason is the obvious attraction of variable or short term mortgages when rates are falling. After all, why lock yourself into high rates in a falling market.
But it appears we have begun falling in love again in March. Banks are reporting many people are looking to fix again long as longer term interest rates rise. Ironically, this big rush to the exits was a factor in pushing up longer term wholesale mortgage rates even faster.
There’s also another powerful force at work. One of the reasons we fell in love with fixed rate mortgages is that our banks were able to get relatively cheap funding for them from very liquid international markets awash with money from the investment banking-led credit boom post 2002/03.
Our banks would borrow for terms of one or two years for not much more than it cost them to borrow off each other on local markets. Now the Credit Crunch has destroyed the market for cheap, longer term funding on international wholesale markets and our banks are having to rely on relatively expensive local retail savers, or ruinously expensive international funding (if they can get their hands on it).
The Reserve Bank is also pushing the banks to lengthen their funding maturities and borrow less offshore to reduce our vulnerability to the sort of financial market shocks we’ve seen in the last 18 months. The net result of these trends is that banks will not be able to offer vastly cheaper fixed rates than variable rates, now that variable rates are dropping.
All banks have now lifted their 5 year mortgage rates to 7.5%or higher in the last three weeks from around 6% before March 12.
Bank profits are under pressure too. The profit margins they charge between wholesale rates and their fixed mortgage rates will, if anything, rise further to compensate for higher bad debts. This will act to keep the pressure on longer term fixed rates to be higher than shorter term fixed and even variable rates.
We are finally seeing a positive yield curve. This sounds like something only interest rate anoraks like me should care about. But it is actually a return to a much healthier set of credit markets and sharpens the power of the Reserve Bank’s monetary policy immensely, although this rush back to fixed rates in recent weeks may blunt the rates blade somewhat.
The weighted average time for fixed mortgages to refix has dropped to 12.5 months from a high of 19.9 months in August 2007. Bollard is helping to sharpen his axe by cutting rates so far and so fast that it encourages borrowers to move to variable rates. He could almost be accused of having an ulterior motive, and who would blame him for it.
But long fixed mortgage rates are rising
Long term interest rates are rising globally as investors prepare for a mountain of debt issuance by governments running up monster deficits to boost their economies. The US 10 year Treasury yield has risen from around 2% to 3% since the beginning of the year, which pushes up wholesale rate curves globally. The failure of a UK government bond auction on March 24 and a weak US Treasury auction on March 24 also hurt sentiment. New Zealand government 5 year bond yields have bottomed out at around 3.8% in the last couple of weeks and are nearing 5%.
This is already flowing through into longer term fixed rate mortgages. ASB, for example, initially set a 5 year rate of 5.95% immediately after the January 29 cut in the OCR to 3.5%, but has raised it in recent weeks to 7.50%. My gut feel is that two and three year rates have bottomed out at 5.95%. All the banks have now raised their 2 year rates to around 6.2%. (Updated to include latest changes).
If you need to fix your mortgage payments for years to make it easier to budget or you think short term rates will rebound quickly in the next couple of years (which they might) then fixing now for 2-5 years makes sense.
Flexibility the key
The final reason for choosing variable or short term fixed rather than long term is that it gives borrowers the flexibility to fix when they see that rates have bottomed out. Longer term fixers should know rates have bottomed out. Being on a variable rate means a borrower can fix at the very moment it becomes clear to people that rates are about to start rebounding.
My pick at this stage is that the OCR will have to be put up again in late 2009 or early 2010 as the enormously stimulative effects of these low interest rates, a low New Zealand dollar and the government’s fiscal stimulus of 3% of GDP fire up the economy.
Central banks around the world are also pumping cash into their systems and in some cases just plain printing money to revive their economies. At some stage all this fuel is going to catch fire and interest rates will take off again globally as central banks try to take away the punchbowl just as the party is getting started. A UK Gilt auction failed on March 25 because of the extra supply and a US Treasury auction on March 25 was disappointing as fears grow that the Chinese have stopped buying Treasuries.
Bollard said on March 12 he expected some “very nasty” inflationary pressures to build globally in the coming year or two.
To find out what all the banks are offering, check out our mortgage rates table, which is the most comprehensive, accurate and up-to-date around.
What’s hot right now (April 1) (Please check the rates table for the absolute latest)
The lowest variable rate at the moment is Kiwibank’s 5.99%. The big banks are grouped around 6.40%, with BNZ, ANZ and National on 6.45%, ASB on 6.40% and Westpac on 6.49%.
BNZ’s 1 year “Classic” rate of 5.49% is the lowest one year fixed mortgage rate at the moment. To get the rate previously, a customer had to buy two other products from the BNZ, however this requirement no longer applies and the rate is now a product on its own.
The lowest 6 month rate is 5.45% from BankDirect, while ASB is on 5.50%, BNZ is on 5.50%, ANZ and National are on 5.79% and Westpac is on 5.79%. ANZ offered a special 3 month fixed mortgage rate at 5.65% after the March 12 rate cut.
The 2 year rates were all grouped around 6.2% to 6.25%, while the 5 year rates are now grouped around 7.5% and 7.6%. (Updated to include various increases).
Again, please check our rates page for the absolute latest, but I will try to keep this fresh.
A final note.
I think this is what the RBNZ will do with OCR (cut it to 2.5%). This is different to what I think it should do (not cut it at all). I think it should keep the OCR high because we have a national savings problem that can only be fixed with less spending and more saving. Cutting interest rates encourages exactly the opposite. We also have a domestic inflation problem which will not be fixed with record low interest rates.
If there is a complete meltdown on international credit markets, which cannot be ruled out most nights at the moment, then there is a risk the credit market vigilantes that killed Iceland will pick on other current account deficit culprits like New Zealand, Spain, Ireland and Britain. We could see the warnings about our credit rating turn into a full scale rout of the New Zealand dollar and a complete freeze on foreign credit. That could potentially force the Reserve Bank to put rates back up to defend the New Zealand dollar. That’s what happened in Iceland. That is one risk that could blow my 2.5% OCR forecast out of the water.
Tags: Alan Bollard, ANZ, ASB, Bank profits, Bernard Hickey, bill english, BNZ, Brother in Law's guide, Cash Rate, David Chaston, Ireland, Kiwibank, National, new zealand, OCR, Westpac
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March 5th, 2009 at 7:47 pm
Only 7 days to wait to see if you are wrong!
March 5th, 2009 at 8:16 pm
Hi, good article. In my (humble) opinion though there will come a point where it will be in a borrows best long term interest to take a a long term rate that is higher than a 3 or 6 month rate. This is because during the course of the long term rate the yield curve will reverse and go negative again. The key of course is picking the right moment to do this, it will be sometime this year though. It would be interesting to do a graph comparing the interest bill over 5 years under these different possibilities, any takers, Bernard???
March 5th, 2009 at 9:41 pm
This is an interesting comment that may affect long term interest rates:
U.S. 10-year yields will fall below 2 percent as the economic figures weaken, said Mike Turner, the head of strategy and allocation in Edinburgh at Aberdeen Asset Management PLC.
A Bloomberg survey of economists projects the yield will drop to 2.64 percent by June 30, with the most recent forecasts given the heaviest weightings.
http://www.bloomberg.com/apps/news?pid=20602007&sid=a_Uzo5Pchc70&refer=govt_bonds
also, http://www.reuters.com/article/bondsNews/idUSB39878120090305
enjoy…long term rates may fall more yet?
March 5th, 2009 at 9:44 pm
Thanks Bernard, I have a big chunk of money on floating right now, and are wondering what to do with it.
I don’t like the sound of that Iceland Scenario tho, it kinda scares me off floating a little.
Fixing most of it long term after the next OCR, with maybe about a third on floating could possibly be a reasonable option.
March 5th, 2009 at 9:46 pm
“it should do (not cut it at all). I think it should keep the OCR high because we have a national savings problem that can only be fixed with less spending and more saving. Cutting interest rates encourages exactly the opposite.”
How can you argue this ? When the OCR was 8% did savings rise suddenly and stay high ? Kiwis love property – its daft but its how we save. Unfortunately not everyone can pick the buy low sell high timing, so get stuck with overpriced hovels on inflated parcels of dung when the bubble collapses. But savers who invest in the share market experience the same effects. Clearly putting savings in banks at 3% is daft because banks now either sit on it or only lend to people who are rock solid, i.e. they lend to almost nobody….Some urgently new thinking on completely new institutions to distribute capital wisely is whats needed. What we’ve had has clearly not outlasted the devious and negligent amongst us.
March 5th, 2009 at 10:05 pm
i love that bloke nigel says . he is truly a rocket scientist.where have all these privitisation good / state ownership bad selwyn cushion and rob brierbery loudmouths gone to.??i ask you. love kooter
March 5th, 2009 at 10:24 pm
I’m not quite so worried about the drop in manufacturing. I suspect that it is partly due to a ‘whiplash’ effect through the supply chain. Once inventories return to more normal levels, manufacturing will pick up.
March 5th, 2009 at 10:56 pm
howardJ – thanks for those links – from scouting around the net there is far more data information indicating long term rates will DROP further vs the story Bernard is trying to tell above.
March 5th, 2009 at 11:27 pm
I think this is what the RBNZ will do with OCR (cut it to 1.5%). This is different to what I think it should do (not cut it at all). I think it should keep the OCR high because we have a national savings problem that can only be fixed with less spending and more saving. Cutting interest rates encourages exactly the opposite. We also have a domestic inflation problem which will not be fixed with record low interest rates.
Bernard, I agree with your comments about the detrimental effect of distorting the OCR downwards: that would be a further disincentive to savings (which are part of the key), and that would spur inflation, but I fail to see how this is fixed by ‘distorting’ the OCR upwards by degrees of guess-work.
If you have been reading my posts, you will know I think part of the problem with our economy (the West) is the institution itself of the RBNZ and distorting the ‘real world’ signals from the market, but that aside, I would love an economists explication of why we don’t just apply that as the solution here. That is, in your paragraph I’ve quoted, instead of asking for the OCR to be raised, what exactly is the problem with simply dumping Bollard (and we save a non-productive wage as well), and letting the market decide interest rates. I put it to you the market in this instance would give you the end points you are arguing for – why would it not?
March 5th, 2009 at 11:27 pm
Lara, I hope they do but am not convinced they will yet. We will find out in the coming weeks I suspect, as what happens in this March month will provide more insight into the year ahead..Bernard builds a case around his ‘positive yield curve’ outcome. Who knows at this point really? If you have any other intereting info please post….
March 6th, 2009 at 8:24 am
Another one for Bernard. The English, in my mind, have utterly lost the plot. Given governments printing money got us ‘here’, this is insane. I would be interested to hear your point of view on the effect of this ‘fraudulent’ New, New Deal between Brown and Obamamessiah on interest rates (we’ll leave out the end of the free world for now). Quote:
The Bank of England cut interest rates by 50 basis points to a record low of 0.5 percent overnight, and said it would pump 75 billion pounds (NZ$212 billion) of new money into buying assets to combat the recession.
Government bonds soared on the news the Bank would be starting so-called quantitative easing — effectively printing money — on such an aggressive scale over the next three months. The asset buying programme equates to around 5 percent of GDP.
Doubts remain over whether it will work but the BoE …
I think ‘this’ is why the DOW is tanking again this morning.
March 6th, 2009 at 8:46 am
Lara,
ASB has increased its 5 year mortgage rate from 5.95 to 6.65% in the last month (another move up overnight).
Long term government bond yields have all risen in the last month.
Do think the laws of supply and demand do not apply to the bond market?
It applied a couple of days ago when the UK government had its worst bond auction in 10 years because of fears about money-printing driven inflation and the weight of 146 bln pounds of new bonds bearing down on the market. Massive government deficits will do the trick.
http://www.ft.com/cms/s/0/c10dc712-08f1-11de-b8b0-0000779fd2ac.html
cheers
Bernard
March 6th, 2009 at 9:04 am
Lara’s answer, confirms my second question, Bernard … I’d still be interested to your response to my first post above, about dumping the RBNZ and OCR to achieve the aims you speak of?
March 6th, 2009 at 9:20 am
Did high interest rates increase saving? I don’t think so.
Will low interest rates decrease saving? I don’t think so.
First of all people have no money, they have only debt.
When confidence about the future is high people often take on more debt. High interest rates do not put them off as they simply work out whether they can afford to meet the repayments (another form of leverage at work).
When confidence about the future is low people take on less debt and often hoard or repay debt with any extra cash they get.
Interest rates are really not the main issue here.
In fact high interest rates merely destroy the productive sector.
So I wouldn’t worry too much about interest rates and spend a bit more time looking at the supply of money (debt) in the economy.
Domestic credit is collapsing. The banks are just a side issue. Their goal is to make money, not to ensure that the economy has an adequate supply of cash to function.
March 6th, 2009 at 9:20 am
Mortgage rate cuts are worth $10 billion
http://www.stuff.co.nz/business/industries/economy/1762849/Mortgage-rate-cuts-worth-10b
March 6th, 2009 at 9:29 am
Mark asks:
> what exactly is the problem with simply dumping Bollard…
In other words, what is the problem with “simply” undoing the central financial institution in the country? Obviously the problem is the word “simply”….;-)
I might also add that as you mention elsewhere that you’re an Objectivist, surely you’d know that this proposal is almost certain not to work, as the New Zealand public does not have the philosophical basis to take advantage of a free market, even if it was gifted to them. Thus even by your lights, this idea would be a certain disaster if implemented now anyway.
March 6th, 2009 at 9:34 am
Daniel:
surely you’d know that this proposal is almost certain not to work, as the New Zealand public does not have the philosophical basis to take advantage of a free market,
More’s the pity, but I agree with you on that – doesn’t mean it shouldn’t happen though.
‘Simply’ is just semantics. Bernard hypothesised a certain set of ‘goals’ to be achieved by guesstimating ‘up’ the OCR, I suggested these goals would be met much more efficiently by the market, if unfettered by the interventionism of the RBNZ and the OCR setting. More ‘efficiently’ in the economic theory sense, and because we would not be paying for the huge, bureaucratic apparatus of State. A ’simple’ question.
I’d love to know the answer to that question from anyone. And from the point of view of theory.
March 6th, 2009 at 10:31 am
ASB up today to 6.65% for a 5 year fixed mortgage.
Was 5.95% 8 weeks ago! So Bernard may be right.
March 6th, 2009 at 11:30 am
“Was 5.95% 8 weeks ago! So Bernard may be right.”
I mean..can we really expect interest rates to stay at historic lows over the next 5 yrs??
What goes up comes down ..what sinks hast to float again.
Doesnt take a rocket scientist to figure that out..and lets face it I dont think the banks are stupid enough not to realise that either…
I mentioned this a while ago several times.
The banks will make good profit of the long term loans in the short term and smaller if any in 5 yrs time…they just keep them low enough to actually make a profit, and compete for new customers.
March 6th, 2009 at 11:35 am
Is it possible that ASB and Bankdirects rate increases aren’t good indicators…after the last OCR cut they put all there rates to 5.95% which mean’t there 5 year rates were well below every other banks 5 years rates of about 6.79% at that time…non of the other banks followed there lead so now ASB is just aligning themselves back with the other banks which have all been stable on there 5 year rates and have all only reduced theres to around 6.5% now ASB has always been more expensive than every other bank so now there 5 year rate reflects what I’d expect to see from them, a slightly higher rate than the average…
March 6th, 2009 at 11:44 am
raf is dead right.
Was channel surfing last night heard some expert on cnbc state that US savings rates are increasing significantly even with zirp. Seems the greatest incentive to save comes from rising unemployment – and we’ve certainly got a lot of that coming our way now…
March 6th, 2009 at 12:08 pm
Lara, I think you are comparing two different things, ie OCR might well stay low, but there will be so much bond debt on offer and so few (relatively) buyers that the return offered just has to rise, I mean whos going to buy all this debt? People with money go to hedge funds where the return is 20~200%, not 2 or 3%. Then if Govns print money (and they are in huge quantities) that bond in effect looses value, so its face interest has to rise to cover that capital loss….
The biggest thing though is I dont think anybody really knows how 2009 will unfold (but it mostly looks really really bad), so if there are a lot of unknowns then flexibility is the key IMHO.
For myself doing the “brother in law” thing, I dont see a 2~3 years fixed as sensible as floating is so low, so I would suggest staying variable or going very long term ie 5 years to try an get some protection from the very high inflation and interest rates that are “probably” going to be our future. So pay a somewhat affordable amount over the odds now against not having to pay the un-affordable in the future (for a time), but it is gambling……
regards
March 6th, 2009 at 12:21 pm
Its a slippery slope and the bond yeild may keep on sliding…downwards now
http://www.bloomberg.com/apps/news?pid=20602007&sid=aN.dtLUFqLKM&refer=govt_bonds
Watch swap rates here http://www.directbroking.co.nz/directtrade/dynamic/ratesheet.aspx
Maybe the upward trend for swaps has turned a corner for a while?
Steven, looks like the fed my start to buy it.
March 6th, 2009 at 12:42 pm
maybe New Zealand will do it to…lol
http://www.nzx.com/news/economy/4869312
March 6th, 2009 at 1:22 pm
…fixed term interest rates….it was revealed yesterday Japan’s 2trln peanut hand to citizen’s out is funded from a 13tln ‘hidden treasure’ (Govt reserve slush fund)… money accumulated from local bodies who took out long term loans for projects up to 20years back at 6.6% and are still locked into the fixed interest payments while rates have since nearly zeroed.
The 13tln has been skimmed off as the difference between the interest paid back from local bodies and the lower interest paid on the Govtbonds that raised money over the years to cover local body projects….PM Aso can throw out more sweet chocolates to the citizens before the Sept elections to raise his 10% approval rate (he may still there if opposition Ozawa has to resign over his party funding scandal)
Yes, NZ fixed and short term punters are faced with a conumdrum too……and there will be rorts involved……Does JK have ‘hidden treasures’ apart from ACC and the Cullen fund?
March 6th, 2009 at 1:41 pm
Tony Alexander now says:
Given that wholesale long-term interest rates have risen a reasonable mount over the past month I’ve given up hoping that I’ll be able to get a 5.5% five-year fixed interest rate over the next few weeks. But I still think there’s a decent chance of somebody offering a rate below 6% with that view based upon an expectation banks will start to offer more discounted interest rates over those longer terms as has traditionally happened when interest rates start getting towards the bottom of their cycle. So for the moment I would still be either floating or fixing for six months but looking to shift towards that five-year fixed rate some time almost certainly before the middle of the year. Next week’s revision of the official cash rate by the Reserve Bank is probably worth waiting for if one is contemplating fixing at the moment just in case they cut interest rates more than we are expecting.
March 8th, 2009 at 10:19 pm
BNZ and Westpac have recently increased their term deposit rates to 6% for 5years so maybe they wont be offering mortgages at that rate.when property was going up everybody thought they owned a mortgage on their house and now it is going down they realise the bank has a mortgage on them.
March 9th, 2009 at 9:32 am
to howardj, what do you think 4 – 5 terms may come down to. i am just a watchful father who is out to look out for my family.i have a reasonable mortgage of $355k so am thinking of splitting it at the 3yr and 5yr rate so would be interested in opinons. have been pretty good at picking things in the last ten years but as you all agree this c.c is just way out there
March 13th, 2009 at 11:42 am
I suspect the path to the future can be found in the last paragraph
of Bernard’s report. The RBNZ will see a rising OCR as less damaging
than the “full scale rout”. Better to play it safe will be the motto.
As for the ability of the many reserve banks to soak up the ocean of
cash they are pumping into the system, fat chance of that.
Just what “tools” do they have to achieve such trickery and why should they be any better at making such a fine judgement than Greenspan.
More likely we will see hyper inflation, just what the States is wanting, to wash away their debts. Look for commodities to explode in price.
March 13th, 2009 at 11:50 am
I don’t think you have to worry about an attack on our economy if the RBNZ cuts from here, Bernard. The last time that happened was 20 odd years ago, and one of the main players in that…. is now our Prime Minister……….
March 13th, 2009 at 7:02 pm
janet
Oh you poor old Helen fan, JK may have attacked the NZD and that I’m afraid was a GOOD thing, for one it probably caused the RB to put systems in place to monitor such a situation and secondly he is well aware of the faults of brain dead ideology which means that a country our size has a floated currency.
Neven
March 13th, 2009 at 9:16 pm
Actually, Neven, I was the Director of a trading room the day that Kreiger hit the markets, and in a far larger market than New Zealand. I have no problem with the option based strategy employed. It was the way it was enacted, and the dealing industry trust that was damaged, and those who were there that day will remember how it was done.
March 13th, 2009 at 10:25 pm
janet
Please explain the “It was the way it was enacted”, did they not play nice in the sandpit? Why do you expect those motivated by greed to have ethics?
Neven
March 14th, 2009 at 12:41 pm
Eactly, Neven!
Now you know why, quoting your own words, trust is, and always will be, an issue for JK.
“JK may have attacked the NZD…. Why do you expect those motivated by greed to have ethics?”
Without ethics no business or society can function for long.
You and I may see the same leopeard, but we see different spots.
March 14th, 2009 at 3:29 pm
So Bernard, you changed your predition. You said few weeks ago 1.5% will be the bottom.
March 17th, 2009 at 9:05 am
I predict Bernard Hickey’s cushy doom and gloom prediction business will inflate to 100% irrelevant within three months, and that NZ will continue it’s love affair with property…Time to find another angle Mr Hickey…
March 21st, 2009 at 10:30 am
Well brother in law the news that “Long term” 5 year interest rates bottom out at 6.5% is not good. Looks like NZ businesses and home owners are to continue being screwed by an Aust banking cartel? While on an even smaller tin pot pacific island just up the road home owners pay just 4.8% and can get some certainty in their lives with 30 year fixed mortgages
http://beta.bankrate.com/funnel/mortgages/mortgage-results.aspx?prods=1&points=All&loan=500000&market=110&perc=20
Thats the kind of mortgage John Key would have on his bach!
March 23rd, 2009 at 6:33 pm
Hi
Thanks for your blog!!!!!
We went to fix from floating to fixed 3 years today with BNZ
BUT on 17th March BNZ brought in a new fee of $250.00 to move from floating to fixed. Are you aware of this fee? And do other banks charge it?
Thanks Leanne
March 23rd, 2009 at 8:11 pm
I’ve been in the process of sorting out a new loan with Westpac. For the last week i’d been trying to tie down the mobile mortgage manager so I could lock in some rates. I’d just got off the phone last Thursday to him after arranging a meeting, looked on this website and noticed Westpac’s rates were increasing the next day! Straight back on the phone and ripped hell out of him. Seems he failed to mention what was happening. Got the rates I wanted in the end, but a very big lesson learnt. At the end of the day, bank staff work for the bank, and won’t necessary have your interests at heart.
March 25th, 2009 at 7:16 am
yes seems like a new way for banks to make money. split my loan onto 3 and 5 yr fixed from floating and was told it would cost me $200 for each. cheeky buggers and i just moved to kiwibank cause i thought they were different. hah
March 26th, 2009 at 11:43 am
Do we yet know the exact timing of this and isn’t the outcome of it likely to crystalise forward scenarios?
http://www.interest.co.nz/ratesblog/index.php/2009/03/25/anz-national-to-issue-first-govt-guaranteed-bond-offshore/
March 26th, 2009 at 11:49 am
Anyone can suggest if AMP is a good option, their rates are competitive ?
March 26th, 2009 at 1:26 pm
Thanks Benard – you’re much more useful than the average brother-in-law… Based primarily on the advice on the 20th March version of this very blog that indicated a likely rise in the longer term rates, I decided to lock in a 5 year rate at 6.5% with Westpac.
The day after the rate was locked in the 3/4/5 year rates climbed, and appear to be continuing to climb. In my current family circumstances (we are ‘nesting’, so on a single income) the security of knowing what our mortgage costs are is important. So as someone with only a mediocre grasp of the factors that influence mortgage rates, I am thankful for your advice.
Keep up ther good work!
March 26th, 2009 at 2:05 pm
Seems that the banks have come up with yet another way to make $$$ from fees. They must be aware more people are looking toward longer term fixed rates now, myself included. To cash in on these customer shifts, the BNZ (previously free prior to 15/03) now will charge to roll over to another rate or a re-doc fee for a new fixed loan (from floating). You get charged to get out of a fixed rate, now you also get charged to get into one. The bank always wins.
March 26th, 2009 at 2:32 pm
I have to say thank you as well Bernard, we fixed on 6.59% for 7 years with BNZ last week because of reading this blog over the last few weeks and your interviews on Radio Live with Markus Lush, which I also make my children listen to.
It made sense to us and we like to know what our outgoings are going to be until the mortgage is payed off in 7 years time. Who knows where rates and the value of our house will be over the next years.
Two weeks ago, BNZ staff were confident rates would go down more, but we didn´t want to take the risk of a rate rise.
Bank Direct had already put their long term rates up several times and told us that they were no longer able to match or undercut other banks long term rates ( that might be different now). Normally they are very flexible and we were very happy with their service and charges too.
March 26th, 2009 at 2:44 pm
Hi Guardian Angel,
Im with AMP and they seem fine, 3yr terms at 6.05% which put them competitive I think. Only a $75 fee for changing from floating to fixed so from what im reading competitive there too in feees.
At least theyre not sticklers for the 20% deposit!
March 26th, 2009 at 4:28 pm
Hi Leanne : the ASB waived my $ 250 fee if I re-fixed my mortgage immediately. Ollie Newland on 3ZB radio, said that it doesn’t matter, long term, if you don’t pick the exact low point in the rates, to re-fix your loan. If you get near 0.5 % of the low, you will have done well. It’s the same with shares- anyone who can pick the exact top or exact bottom of the cycle is either uncommonly lucky, or a liar !!!
Bernard : are the UK & USA gumnuts over printing trillions of pounds/dollars to get out of this financial shamozzle by using inflation ? Seems a cowards way out : what-ever happened to hard work and thriftiness !
March 26th, 2009 at 4:28 pm
Westpac have just advised that their 2 to 5 Year rates are going up between 0.35 % and 0.5%.
Have offered a 60 day window to lock rate in. And a $250 break fee if unused.
March 26th, 2009 at 4:49 pm
That was lucky… I decided at lunchtime to take about half my floating mortgage and fix it for 3 years at 6.15%. Emailed the personal banker and gave him the details.
He sent me the documents to sign and 20 minutes later emailed me to say that Westpac had raised the rates to 6.5%. So that was uncommonly lucky…
I have told him to set the repayment rate at close to what it is being repaid at now on floating rate and kept the rest on a revolving credit.
Basically I have decided to use the fixed rate as a hedge against the unknown. If rates drop heaps then I will benefit with the amount still floating and it will get paid off faster. If they rise sharply then it will just get paid back a bit slower. After 3 years both loans should be about 70% paid off and the remainder will be neither here nor there.
March 26th, 2009 at 11:02 pm
Pretty good article! I can’t believe I read about it only now. I really think you’re right though. I mean as optimistic of a person I am, I still can’t agree with you more. Now is probably the most perfect time to fix everything.. As they say, strike while the iron is hot.
March 27th, 2009 at 10:28 am
Wow, good timing! I am with National. Yesterday read this article, plus watched the other bank up their rates. I fixed our mortgage rates late yesterday(first home buyers). Split our mortgage with 25% of loan on 2yrs @ 5.89%, 75% of loan on 4yrs @ 6.55%. So thats an interest average of 6.22% for the first 2yrs. The last thing the bank told me on the phone after we fixed our rates was “well done – the rates are going to rise shortly” This morning noticed all rates up – whew!
March 27th, 2009 at 10:29 am
Anyone think the rates will go gown in the future? I fixed half of mine three weeks ago at 5.99%, the other half is still floating.
March 27th, 2009 at 12:06 pm
emcd, I reckon rates will rise rapidly now for longer term 3 years plus. There are more and more clues that the Govt is scrambling to keep the ratings agencies from downgrading. The Budget, May 28 (or 29?), is they key date for that. Will what you gain on the low floating rates for the next 6 months (maybe) be cancelled out by a big rise longer term?
It’s actually the international perception of NZ’s situation that will have the impact on our rates — John Key is still playing the markets like the wily old trader he is by telling the New York financial press that he’s centre-right. (Read Danica Hampton this morning). But how long can that play work? So Ive locked in to get a bit of certainty for my nest.
The cartoon Bernard ran in Jan/Feb showing people enjoying a beautiful empty beach while the tsunami gathers height behind them is about the best summing up of NZ over the last few months that I’ve seen. It hasn’t hit yet but we’re starting to see the stranded fish.
March 27th, 2009 at 2:00 pm
I called my bank (ANZ) yesterday, to fix at 6.75% for 5 years. I asked couple of questions but she said she must go and would call me later. Waited for her call for couple of hours, but nothinig.
I emailed her with points of my questions and explained my intentions. “I want to fix for 5 years”. She didn’t call me, but just replied me saying she will talk to me tomorrow. It was frustrating, but what can I do?
This morning, I found the rate went up by 0.75%, and I called her. She says “I’m sorry, too late. The new rate is effective from today”.
It’s unbelievable, and rude. I’m really really disappointed.
March 27th, 2009 at 2:15 pm
I would not be that disappointed if I were you. I suspect 7.5% will be seen as a very good deal in the none too distant future the way things are going…………
March 27th, 2009 at 2:17 pm
@sung – call the manager and raise hell. no satisfaction, go find another bank.
March 27th, 2009 at 2:19 pm
Banks should be made to sharpen up their service levels at this time. We recently sent through a very specific email requesting that our floating loan was fixed at the (then) three year rate of 5.99. We were told that to do this we would have to go in and see someone but that no one was available for 4 days. I appreciate this is a busy time for the banks but we shouldn’t have to suffer financial losses from interest rate changes whilst waiting to see someone – especially since some of us have paid huge sums of money to break fixed term agreements and are now expected to pay again to re-fix (have they no compassion!?!?). This should be investigated. The banks don’t cut us any slack – why should we cut them any?
March 27th, 2009 at 2:27 pm
That’s life Poppy – the banks can’t cope with the volume of people changing their minds about rates, fixing. floating etc. They fired too many people over the last few months and now they may need to rehire.
March 27th, 2009 at 2:28 pm
I was talking to my mortgage manager on Tuesday, looking to fix for 3 years – they told me rates will come down – the rates went up on Thursday.
Should I question the advice I was given?
March 27th, 2009 at 2:29 pm
@sung – I agree with sj – raise HELL. We recently had the problem I mentioned above but before that (when we were breaking) a staff member couldn’t answer a questions and didn’t get back to us when they said they would. Break fees went up considerably over night. I fought tooth and nail for about a week with anyone I could speak to and threatened to go to Fair Go. In the end they back dated (as they did in my case above). Don’t give up – just keep going on with them. We shouldn’t have to do this though.
March 27th, 2009 at 3:12 pm
@Poppy, sh:
Thanks guys, I called manager to raise HELL, but she didn’t answer the phone. I won’t give up. it’s not fair really.
March 27th, 2009 at 3:56 pm
Maybe a querky thought here..havnt done the maths yet…
Those of us still on mid 8% due next yr… as time has gone on, and long term interst rates rise, our break fees become significantly less.
It should not be long before it is worthwhile to break and fix again.???
With the printing presses fired up, inflationary pressures I can see interest rates get way up there in a yr or so??
March 27th, 2009 at 4:35 pm
Does anyone know if any of the banks offer the borrower the option to agree on a future interest rate – I have seen it for new home buyers (e.g. here is the rate valid for X number of days).
I’m thinking of the case where a borrower has a fixed term, with a maturity in say 30 days, but when the fix term ends in 30 days they would like to fix at today’s rate. Essentially locking in a future rate for a fee (which would essential a differential interest amount for 30 days).
In a very simple case it is just like taking out a new additional loan today, putting it on term deposit for 30 days and then after 30 days it covers the old loan when the old loan matures.
March 27th, 2009 at 4:39 pm
Sam – sorry to hear about the questionable advice you got. While it was Bernard’s blog that movitavated me to get onto fixing, my mortgage manager also seemed to have wind of the likely long term rate rise last Friday and was busy calling all his clients to warn of the predicated rises this week. You’d think if he was in the know that your mortgage manager would have had some inkling as well – definitely worth asking them why they got it so wrong when their ‘peers’ in the industry had worked out what was going to happen…
March 27th, 2009 at 4:56 pm
Thanks Bruce – I actually just got an email from my bank, and lets just say it has worked out nicely
My tip of the day – even if you are talking to your mortgage manager, send an email as well. For me it validated the time I requested the new rate and term.
March 29th, 2009 at 11:25 am
Complain loudly to the Banking ombudsman. Copy all the emails etc.
Banks don’t like that because it costs them plenty.
March 29th, 2009 at 4:12 pm
Does anyone know whether the rate you are quoted has a life? Between the time we were quoted (last week) 6.85% fixed for 5 years and obtaining a required credit card statement, the rate has jumped to 7.6% This means $27 a week for us, for the next 5 years!
March 30th, 2009 at 10:52 pm
Decided to stay floating (6.24% for now).
March 31st, 2009 at 7:30 am
well i got in by the skin of my teeth.fixed half at 3 yrs 5.99 and half at 5 yr 6.49.cost $200 so was a bit wrong on earlier report.sweated a bit when i saw others comments but letter arrived yesterday confirming it all and raes have since risen by .5 to .76.now i can buy the kids an ice-cream when they ask.
April 1st, 2009 at 8:27 pm
Great vid on housing affordability!
http://www.ft.com/cms/bfba2c48-5588-11dc-b971-0000779fd2ac.html
April 2nd, 2009 at 6:38 am
I was surprised by the extent of last weeks rises, will be interesting to see if Bollards comments turn into action if the banks do not move their fixed rates down.
April 3rd, 2009 at 12:11 pm
Bernard, I watched Gareth Morgan and a banking economist last night on Close Up (April 2nd) telling people that this is just a rate “spike” and that long term interest rates could possibly even drop slightly in the next six months. They said Alan Bollard has been indulging in some rather unhelpful “jaw-boning” – making it seem that our RB Governor doesn’t really have his finger on the pulse of global economic forecasting at all. Gareth was telling people there is certainly no hurry in fixing – people should take their time – he suggests the variable rate will stay low for up to two years anyway – so don’t rush to fix anything. Their advice seems to fly in the face of interest.com which I follow avidly and recommend to many people. I must admit I’m feeling a little confused about their advice – could long term rates suddenly start moving downward as they suggest and will the variable rate remain low for 2 years, in your opinion?
April 5th, 2009 at 5:47 pm
Hi Jayne, It looks to me like long term fixed rates will fall 2-3% for winter. The RB just made a little mistake with the OCR and cut too small and suggested a near end to OCR cuts. People got worried and began to fix long term which increased demand on long term rates, this inturn increased supply value which raised the long term rate percentage beyond the control of the banks or reserve bank (the market moved the market). I’m sure the RB will try harder next time and lower the OCR better. Just a little hic-up, nothing to worry about.
April 29th, 2009 at 11:19 am
If you put all the predictions of so-called experts, including Bernard Hickey, into a pot and stirred them all up you would see that the sum total of what they say is nothing. Is there anyone who does actually read the markets better than 50%? Everyone tries to jump on this and ride that and get off here but at the end of the day what we should be asking, and being told, is what is best, fixed or floating? Those who have been on floating are saving at the moment form those who are fixed unless of course you are talking very short term. It’s all a big gambling game and I have yet to see the true stats about which is better. It’s fine to say you should have done this and then you could have done that but what I would like to know is the big picture, is one better than the other, it’s a simple question, it’s one that no one ever shows the stats for at least nowhere I have looked. My personal opinion is floating is best. the flexibility to put extra money in when not being used and yet still have it available should other opportunities arise is invaluable and of course must be taken into the equation when calculating true percentages. One last comment, several commentators have sided with the banks in terms of their seemingly extortionate, amybe even market fixing interest rates when viewed in relation to the OCR. Yet, today, ANZ national announce a 24% increase in profit. You don’t have to be a rocket scientist to work out that we are paying through the nose for our loans and mortgages.
July 1st, 2009 at 2:26 pm
Rate Lock !!! rate lock, rate lock,
…then decide by the 60th day if you want the funds. $500 per $500,000 as long as you are preapproved or have approved funds already with your existing loans that you can easily break without high break costs. Ask your bank about Rate locks, I’m amazed still why this option has never made the press.
[I blogged on it in detail a few weeks back]. Seems thinks balck/white & forgets the shades of grey & my favorite colour- pink!!! where gold can be preserved by way of protecting your position with banks current interest rates on offer. I’m on 4.99% till mid October, will likely take up my 3 yr rate locks @ 6.75% by mid August to save over longer period. To take cheap rates for 1 year or two, doesn’t really win you security of the future. Hence I recommend right now 6 mths at 5.5% approx, take out rate lock 60 days at your favored term i.e. 3 years at 6.99% approx or less with some banks. In 60 days after enjoying 5.5% you may wish to jump onto 6.99% 3 yr term, or if rates the same the cost on option was only $500, so walk away & take another rate lock the same again to cover the next 60 days… you may do this 3 times or more, still way cheaper than landing on 8% rates in 1 years time or 2 years time. ‘Only you can truly calculate your longterm, best, position, better than anyone with vested commissions or rewards in guiding you. My average interest over last 6 year period has been 7.1% & I’ve had heaps of various loans in that period. Watch out on banks with high break costs as reported in NZ Herald. These were Westpac & Kiwibank, possibly one more. Google & check on that about 8weeks back.
Nobody can pick interest rates, nor the market; trust me on that one, go with your gut, and listen to 6am world news daily, read interest.co.nz regularly. Move & act swiftly at times. Don’t sit about on fence. My experience comes from 21 active years in property ownership. Goodluck from LandlordMentor
July 2nd, 2009 at 10:03 pm
sorry word missed out in above along the way … correction is;
“Seems NEW ZEALAND thinks balck/white & forgets the shades of grey & my favorite colour- pink!!! where gold can be preserved by way of protecting your position with banks current interest rates on offer”.