Fixed mortgages up NZ$8.3 bln, or 13%, in three months with floating mortgages down NZ$6.6 bln, or 6%

If you had some cash scarfie, you would know that putting it in your mattress is not a long term investment strategy...

Inflation is real and ever present in a fiat currency...

In that very unlikely event (assuming you couldn't see it coming and break the long term fixed at a cheap enough price), then you could borrow double what you currently have and with only 50% of the original amount fixed long term the average interest rate paid is 3.75%pa.

But realistically interest rates are not going that low.  Stand alone house prices (like for like) in Central Auckland are up 30% in the last couple of years.  In ChCh like for like stand alone homes in undamaged areas are up at least 20% since pre-eq.

Nothing much is being built to make up for the leaky or the shaken.  Rents are rising.  $20b in insurance monies still have to flow into the hands of property owners (despite eqc being in denial about how much repairs cost).

The chances of lower interest rates being the action required and those rates getting passed onto consumers is increasingly unlikely.  Something less orthodox will probably be the outcome if the NZ economy grinds down.

Do you believe that banks would be able to offer just 0.5 to 1.5% term deposits?  Perhaps just 0.35% after tax return?  I think that there would be a rush into other investments, hence banks would having nothing to lend and interest rates would rise.  The only way this would work would be if the banks were flooded with liquidity from the Reserve Bank.

The only way NZ could see interest rates at that level for starters, would be if some fear absolutely swept the country and property prices plunged 30 or 50%, in which case no one trusted real assets and they preferred nil returns to investment risk (as per the USA).  For that to happen NZ would need vast tracts of unwanted housing - NZ doesn't have that.  If prices did fall that amount, net income from a rental property would perhaps exceed 10%, so money would pour out of those 0.5% TDs.  Prices would soar, as would inflation and consequently interest rates.

The only realistically possible scenario in which I can see 3% interest rates occurring, is a mass exodus.

All just so unlikely.

A great depression style shutdown is never a near term likelihood in a country where there is such huge inflows of foreign reinsurance capital on the horizon.

Rates may stay low for a long time, but Bernard don't you recall predicting interest rates being nealy 9% by now just 2 years ago!!

http://www.interest.co.nz/opinion/49780/why-variable-mortgage-rates-are…

I recall I gave my prediction back in 2009 when house prices were falling (and an unnamed someone was predicting a 30% fall!) that prices would slowly recover off their lows but remain reasonably stable for up to 5 years from the peak (2012/13) then see solid upward movement in good locations (though nothing compared to 2002-05).

It seems the events have brought that upward movement slightly forward...

If that is happening though (and its very probable) then house prices will be dropping like the Hindenburg.....ChrisJ, no one in their right minds will be borrowing.

regards

I'm happy to be wrong and enjoy flat or dropping interest rates.  However, the deflation scenario may come with other negative trends e.g. job losses, SME closures etc.

Anyway, here's a way to get a 4.95% Fixed rate for 30 years: (Yes, in NZ).

1. Slice your mortgage into segments.  Float.

2. Take out a Westpac Mastercard with 50k limit.

3. Take out another bunch of CCs at combined 50k.

4. Withdraw 50k cash from other CCs (may take a few days)

5. Deposit 50k in bank - repay 2 segments of mortgage.

6. Balance transfer all the combined CC balances to your Westpac CC. 

7. Enjoy 4.95% for 30 years on your WP CC.

Repeat with your wife/husband.   There's 100k at 4.95% for as long as you like. Plus it's unsecured.

This of course will be subject to credit criteria.  But it is entirely feasible, & demonstrates how low rates will probably be going into the future.   Low low low ....