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Fixed home loan rates start the year falling

By Janine Ogier

Tuesday 17th January 2006

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Weekly home loan report: Borrowers begin the year with some hope that interest rates have reached their peak as weak growth data indicated chances are the Reserve Bank will be in a holding pattern until later this year, when some easing may eventuate.

In the home loan market, competition is heating up in the two- and three-year fixed rate sector with lenders taking a lead from Bank of New Zealand and National Bank cutting rates.

The first moves, more than a week ago, were BNZ dropping its two-year rate from 8.25% to 7.99%, and National Bank cutting its three-year rate from 8.20% to 8.00%.

ANZ then matched the National three-year rate.

Sovereign, Bank Direct and Kiwibank also cut their two-year rates, while Sovereign and Bank Direct also dropped their three-year rates. The cuts are significant ranging from 10 to 25 basis points.

Others to change rates over the last week include Pacific Home Loans, Pioneer, Premier and Headstart.

This week, BNZ cut its three- and four-year rates to 7.99% as well. The decreases are just on BNZ's no-frills Classic product. This means the differential between the Classic and standard BNZ rates are larger than in the past.

Another change is ASB Bank dropping its rates in the 18-month to four-year range. They now sit in a band between 8.05% (longer terms) and 8.25% for 18 months.

This week inflation numbers and the quarterly survey of business opinion will be the focus of market attention ahead of the Reserve Bank's official cash rate review next week.

The Reserve Bank will be having palpitations over the reductions in fixed lending rates seen in the past week, but there is no need to reach for the palliative, ANZ markets economist Cameron Bagrie says.

There's only one analyst predicting further tightening - ASB chief economist Anthony Byett. While other economists stepped up their doom and gloom rhetoric on prospects for 2006 after weaker-than-expected gross domestic product figures for the third quarter were released before Christmas, Byett did not discount the chance of a rate hike either next week or in March.

"There is a hint in more recent statistics that expenditure growth will slow further, but it is yet to be seen whether the deceleration will be quick enough to assure the RBNZ that the inflation rate will gradually decline.

"In other words, another RBNZ tightening cannot be dismissed yet. It is spending, not production, that is the target issue at present. And the factor that will determine whether another tightening is required," Byett says.

Bank of New Zealand chief economist Tony Alexander now sees no easing from the Reserve Bank until 2007, but he believes there is little upside left in fixed rates unless there is a surprising major sell-off in the US bond market.

Variable rates now range from the 8.50% offered by Napier Building Society to the 9.75% recorded by Headstart. The major banks are centred around the 9.55% mark.

One-year rates still vary from the 7.60% offered by Southern Cross to 9.10% from GEM Home Loans, as was the case before Christmas.

Two-year fixed terms now range from the 7.75% offered by Southern Cross to 9.25% from Headstart.

Three-year rates start at the 7.75% offered by Southern Cross and end with Headstart's 9.15%.

Four-year fixed rates still vary from the 7.95% offered by Loan Plan to the 8.35% from Pioneer.

In the five-year part of the market, rates vary from 7.8% offered by Kiwibank and Mortgage Finance to Gem Home Loans' 8.65%.

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