The mortgage market may see many borrowers on floating rates decide to fix in 2013 to take advantage of lower interest rates

Most banks now offer 5% floating - all you have to do is ask and simply include a threat to change bank. Also easy to get two years fixed at sub 5% but why would you fix for 2 years when rates are likely to stay low or drop even further. Expect to see special low summer rates released later in January as banks prepare to fight for business targetting the Feb/Mar/Apr real estate sales flurry.

We have an entrenched economic dependence on a continuing flood of cheap credit into a price bloated property sector and nobody in the Beehive gives a rats about it.

Labour are likely to take office on the back of unsound promises to build houses below cost for anyone. Only fools and Horses would believe the promise is an absolute....NZ is full of fools.

Wheeler is close to being forced to raise his blunt tool in an effort to slam the door on the property bubble..too late...again. He will....and even a weeny teeny rise will tear the flesh off the marketplace activity, which is best judged by the 'high street' sales battles going on.

The flesh will fly as we approach the next electoral farce....got your bucket of mud ready have you?

The point is that no one knows what will happen, and anyone who thinks that they do, does't understand what's happening offshore and temporially holding markets together - the eventual consequences of that, and its only the timing thats the issue for me, is that any typical NZ first home buyer who can't afford 8% mortgage rates, shouldn't be buying. The big plus for them in holding off is that many others will buy when they can't meet that requirement, and consequently the "hold-offs" will end up with some bargin opportunities in the future - the problem is, how long do they have to wait ? I'd be patient.

Steven, maybe the 8% is at the extreme but I guess what I'm anticipating is a similar situation to what happened in the 2nd half of the 1980's when mortgages rates went to 20% plus (in this case though, I'm only talking less than a third of that) i.e. rates went up due to a need to crush inflation notwithstanding the fact that it would also crush the economy - i.e. similar to what Volcker also knowingly did in 1980 in the US. 

Yes no sign of inflation here for at least a couple of years (2-5 ?), but NZ will import it when the global money printers start impacting commodity prices again, and when they do, it will be eventually crushed again (I'm talking much more modest inflation than the 80's for us). Eitherway, the NZ housing market won't handle it as you say, so that's where I see the bargins coming from, but again, how long away, possibly 2-5 years ?

quick fix quick fix!!!

does this site really have to keep posting this?  Will it be as wrong as every other one.

barrage of quick fix, must be another cut coming.

Interest rates will keep dropping or at worst stay flat.

Scaremongering at 8% has penalised first homebuyers who could have bought back in 2008/9 and paid 1/4 of their mortgage by now at current rates. 

Don't fix for more than 6 months -  there will be no return to normal economic levels/operations for some time to come.  Do you think the USA & EU & other global problems have been solved?  The entire financial house of dominos is only just managing to hold together on a daily basis. 

Floating remains Fixed. (where is the floating part of 'floating?!)

While Fixed rates keep 'floating' to entice the gullible & unwary!

Quick, panic - rates may go up due to amazing inflation of .2%.

Let us tempt you with enticing fixed rates just a little lower than floating -  We need you to fix for 3 years -  then we have you locked in with us for 3 years, & we can whack you with a $10,000 "break fee" for selling or repaying (heh heh). 

8%.  Very unlikely.  But if I had large debt as I once did.  Then I would be very concerned.  Sleepless in fact.  Because is 8% is possible.

If somebody had just bought a property in Auckland at those amazing prices, and at a repayments level they could only just afford then it is very thin ice.  I don't expect Auckland prices to plunge not do I expect interest rates to rocket.  But they could.

And a 3 year fixed rate is not much help if you are locked into a 25 year treadmill.

Steven - I think we're in agreement here, and yes 8% will now be like the 1980's 20% to many mortgage holders. It a sad thing as its clearly coming plain as day. When we do get that inflation inspired interest rate rise, which will come regardless of the economy's ability to handle it, many borrowers individual unprepareness to handle both the higher interest rate, and commodity prices, will eventually collapse demand, and prices with it.

Unfortunately there are far too many like Mortgage Belt who clearly don't understand the risk, because they can only seem to look out 12 months, think everything is a conspiracy to trap him, and fail to see the big picture two years plus further out. Maybe Mortgage Belt personally can because he's comfortably positioned, but many exposing those wishful thinking views are the types that regretfully may not be in a position to withstand that initial spike, and will be some of the sellers into the collapse in house prices (10 - 30% who knows ?) 

So Grant, are you suggesting there could be a downward correction of 10-30% in Auckland?
Anytime soon, or are you talking about 3-5 years down the track? Because until then Everest seems to be the limit with Auckland property! When a market correction does come do you really believe a 30% dip is possible, given the dynamics driving the Auckland juggernaut - I think not, 10% possibly - and only then in less desirable suburbs and coming off the record gains it won't seem like a 10% hit anyway.
Auckland property will always be the fastest to bounce back, if and when that correction takes place. Until then it's going to take at least 5 years to play catch-up on demand and supply...so to expect such a doomsday for our quarter-chunk of NZ could be a long wait to come...?

The key is the phrase in the article "For every $100,000 of borrowing, you could either reduce your payments by $8 per week ($400 per year), or if you leave your payments unchanged, reduce your mortgage by up to 3 year and 9 months"

If people are holding their repayments up this puts real pressure on the banks, because as the repayments increase the amount the banks have to lend increases each month to keep up their lendings. The posters on this site are very Auckland centric but in most places in the country prices are static and the banks dont even gain (bigger mortgages) when people move and upgrade.

There is also a question whether the Auckland market is driving increased lending. There is some hint that buyers in Auckland are (chinese) cash buyers and the present owners (like Mr Hickey) are cashing up, paying off their mortgages and buying debt free. This is not good for the banks because they are gaining cash but losing a credit worthy borrower.

Static property prices (excluding Central Auckland, and Chch where prices are being driven with insurance cash, not increased borrowing), dropping interest rates causing faster repayments (the real drop was people going off 8% fixed) is going to put real pressure on interest rates.

EN - Yes, but although I'm talking NZ averages, certainly it would make sense that if 30% did work out as an average across the country, Auckland would be at the lower end and perhaps in the 10-15% for all the reasons you rightly mention. Timeframe wise, yes since inflation isn't an issue even in NZ for at least the next 2 years to my mind, it would take another year of more of higher than expected rate rises in response to that to impact the market.

So realistically we probably would be talking 3-5 years away, but 2-4 if some of the more accurate commentators pre-GFC are correct about the early spped at which they expect the likes of the US to start being impact by inflation - none of us know for sure, but we have to be really cognisant of the risk

Neville I think in the short term thats a possibility but solely because bank funding spreads will be falling somewhat while europe manages to stay afloat - but watch out if there's another break-out from there, although I suspect not this year. But in the medium to long-term bank margins are playing at the margin in terms of whether rates go up or down, the bigger impact will be what happens to the OCR, and more importantly and earlier, what happens to swap rates which underpin the fixed rates.

 This is the same discussion that happened in 2008/9. This time there wont be the pressure of NZ banks getting funding from the short term European wholesale market due to the lack of funding pressure and the longer term financing the banks (pressured by the RBNZ) have undertaken. The OCR only affects actual funds borrowed from the RBNZ. If there is no pressure to borrow the OCR becomes just an indicator.

There is also the 'safe haven' aspect of NZ that may draw in funds if Europe goes pear shaped.

Yup but 2009 was nearly 4 years ago now, and many multiple trillion of fiat currency has been issued since then which is the reason that bank funding spreads have topped out - but when that cash eventually flows into the market in greater volume watch out on the inflation front in those countries, and particular in the US who's currency most commodities are rpriced in for all of us.

The OCR isn't going lower, the bank bill rate will remain 20 point above that all other things being equal, the curve could flatten a bit more from here with regards the fixed rates, but the balance of risks is to the topside, the question just remains when? And if we're wrong on Europe this year, then don't expect bank funding costs to see much downside even although we may get a OCR cut or two in that event - risk/reward I know which way I'm playing it - bigger risk takers will play it their way

The typical scaremongering by banks urging borrowers to fix is losing it's effect.  Noone really believes interest rates are suddenly going to hike up given the very precarious and fragile state of the economy.   Borrowers have heard it all before.   2009,  2010, 2011, 2012 - for 4 years we have heard the drums beating of "better fix - rates are going up & really fast too".    Wrong, wrong, wrong  - rates went down (other than a foolish hiccup by AB which just about stalled the economy with 1 little hike).

The other attitude now is -  well if the global economy is going down the tube - then bring it on - the Govt, RB etc are unlikely to let every household & small business default.   Will a 2 year fixed rate really buffer you?   Given that NZ-ers not only pay the highest interest rates in the world, but also are unable to fix for the life of the loan - as in the USA. 

At the first sign of significant bad news globally or in NZ/Aus in 2013/14 then watch for more cuts....

You know, scaremongering tactics are the cheapest and most effective way of spiking bank business - we are are all driven by our fears - and the fear of loss is a very powerful driver as it's very much linked to the fear of death -  the driver of all fears.

As we all know, this is a big game of tactics and psychology is always at the core. You can bet the banks have members of their marketing team who are in fact sociologists/demographers and behavioural psychologists who are there to sniff the wind and look for weaknesses in our collective psyche. They need to either pre-empt the mood of the day or attempt to create it - and fear works....except of course with sceptics like us!