Mortgage Watch: Waiting for the magical mark

www.goodreturns.co.nz

Friday 13th February 2009

The expectation from many borrowers are that home loan rates are going to keep falling and medium to long term rates will hit the magical 5.5% mark.

This trend has been heading that way and after the latest official cash rate announcement rates of three years or more from the major banks went sub-6%. However last this week ASB and its related entities (Sovereign and Bank Direct) pushed their rates back up again.

The reasoning behind this move is likely to be what is happening in the wholesale markets. The longer New Zealand mortgage rates are priced off international markets and here we have seen rates pick up a tad on slightly better economic news.

With the local market being as competitive we can expect to see that other banks will follow ASB�s lead.

The unanswered question is whether this is a blip or a trend change? Only time will give us that answer.

What�s the best deal at the moment?
There still seems to be a good degree of logic in opting for floating rates on the premise that there will be further OCR cuts, which will in turn drive rates down.

Currently the OCR is 3.5% and there are some predictions it could get as low as 2%.

Reserve Bank governor Alan Bollard has acknowledged that bank still has room to move (while some other central banks have run out of wiggle room).

Recent economic data including employment numbers and house prices are still weak, suggest the bank will cut.

The key issue for borrowers is when to fix. Ideally fixing at the bottom of the curve is ideal, but picking it is difficult.

Borrowers need to be watching the market closely, shopping around and looking for the best deal. Also they need to be prepared to move and fix for longer terms if they can get a good deal.

While rates are between 5.5% and 6%, many people will be looking for the 5,5% as the magical number.

To check and compare rates go to Good Returns and click on Mortgage Centre

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