Weekly home loan report
Thursday 18th May 2006
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We are now getting back to the levels rates were at at the beginning of the year and it looks as though there is still more upside to go.
The market, which previously had been pricing in several OCR rate cuts this year, now has only one 25 basis point cut priced in.
This shows that it has taken the Reserve Bank governor's comments at face value.
Bollard has been telling the market the central bank won't cut interest rates until headline inflation is heading down. While the horizon for rate cuts has been pushed out there is a view that the economy could be in for an extended period of weakness and when eventual rate cuts come they would be sharper than usual.
On the competitive front the one observation worth making is that it appears BNZ is holding out on increasing its rates by the same level as other banks. This means the gap between the two is widening.
This is likely to be a tactical ploy rather than a long-term trend.
However the BNZ itself acknowledges that competition in the home loan market is particularly intense at the moment with well below average margins.
It says there is a risk that fixed borrowing costs will be increasing over the next few weeks so lenders can improve their margins.
If you are looking to take out a one-year rate with the hope of refinancing at lower rates next year then the range is from Southern Cross's 7.85% through to GEM's 8.80%. While there are a couple of smaller lenders with the lowest rates, the first group after that is offering 8.10% and the banks are around the 8.25% mark.
The two-year market is most interesting with BNZ being the lowest at 7.60%, and the other banks in the 7.90% to 8.00% area. The difference between BNZ and the others is significant and it is also worth noting that generally the banks are clustered towards the low end of the range with fixed rates, but in this market they are nearer the high end.
In the three-year fixed market things are a little different as well. Kiwibank and Mortgage Finance are the lowest with 7.45% rates, and the banks, rather than being clustered are in a range from 7.75% to 7.90%, with BNZ not far outside the range at 7.70%
To compare mortgage rates visit the Good Returns Mortgage Centre http://www.goodreturns.co.nz/section/2.html
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