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Outlook for rate changes low

Weekly home loan report

Wednesday 31st May 2006

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Weekly Home Loan report: The past week has been a relatively quiet one for rate changes in the home loan market. Also the latest figures from the Reserve Bank, released yesterday, show that the volume of lending is declining.

The only bank to change rates during the week was Kiwibank which increased its short and long term fixed rates leaving the two and three year ones unchanged.

Among the non-bank lenders Argosy, CBS Canterbury, Mortgage Finance, NZ Mortgage Funds, PSIS and Tasman all increased rates.

The outlook for rate changes appears a little benign at the moment with rates in the wholesale markets remaining stable.

The only caveat to this observation is that global interest rates appear to be heading up, reflecting solid global growth momentum and rising global inflation pressure.

Central banks in the United States, Europe, Australia and Canada have all lifted rates recently and there is the possibility of further rises ahead.

In the United States attention is focussed on whether the Federal Reserve will again increase its rates.

The significance of these observations is that further increases offshore will, in all likelihood, mean longer term fixed home loan rates - particularly five year ones - will rise.

On the lending front the Reserve Bank said yesterday that the growth in mortgage lending fell from $1,762 million in March down to $1,251 million in April.

"Mortgage growth of 14.9% was recorded in the year to April, from 15.5% for the year to March.

This is the first time the annual rate of mortgage growth has fallen below 15% since September 2003.

"Mortgage growth is slowly easing from a peak of 17.4% for the year to April 2004. We expect a more marked moderation as the year progresses, as New Zealand households enter a period of balance sheet consolidation similar to that undertaken by their Australian colleagues 18 months ago," ANZ economists say.

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