What’s going to happen to Home Loan Interest Rates, and are they going up as the commentators are saying???
An increase in lending rates has been predicted for the last 18 months, although we are yet to see any movement in rates. Why would we believe rates will rise now? Many economists are stating Home Loan rates will rise in April next year. Economists have been predicting a rise for some time and the date the rise will take place keeps on moving out quarter by quarter.
Interest Rates are increased and decreased by the Reserve Bank through the Official Cash Rate (OCR). The OCR influences the price of borrowing money, and is a means of controlling / influencing economic activity and inflation. The Reserve Bank measures many aspects within the economy when setting the OCR. Some of the important indicators which the Reserve Bank considers are;
- Inflation- The target band of between 1 and 3 %
- Exchange Rates – This effects inflation due to the price of imports and exports
- Employment – Low of High Unemployment are factors which effects Wage and Salary Levels
- Business & Consumer Confidence – Investment and Purchasing intentions
- House Price Inflation – a recent measure with property values on the rise and considers affordability
- World Outlook – What’s happening with our trading partner’s
We also have a new environment with Reserve Bank Restrictions on over 80% LVR Lending, which we have not seen before. The first months sales volume statistics are showing a seasonally adjusted sales number decline which has been rising for some time.
Boring stuff for most. Lets look at what’s happen in the interest rate markets ;
- Official Cash Rate 2.50% – unchanged
- 90 Day Bank Bill Rate 2.64% – down from 2.67%
- 1 Year Swap Rate 3.02% – up from 2.98%
- 3 Year Swap Rate 3.89% – up from 3.88%
- 10 Year Bond Rate 4.65% – up from 4.56%
Based on this market information and a rising rate curve with time, predictions of a rate rise within 12 months looks likely to be true. The Reserve Bank does have conflicting pressures as an increase in Interest Rates will see demand for our currency from overseas investor taking advantage of higher rates, which will see our already high exchange rate continue to strengthen, therefore reducing the cost of imported goods and reducing returns to exporters. This will reduce the pressure on inflation.
If rates are to rise, the big question is to what level they will go up. This sends a shiver down the spin of all borrowers as the cost of their monthly loan payment will rise directly impacting personal and Business Cashflow. Recent discussions with immigrants from the US and UK around rates are interesting with almost identical comments “ how expensive our rates are”, and when you compare them to rates in the USA and the UK, they have point. New Zealander’s have become accustom to higher rates, which in my opinion needs to change.
Fixed Rates offered by NZ Bank’s are a great tool for smoothing out rates. Your own circumstances and situation will determine the rate and term you choose. Talk to a trusted advisor and structure yours loans to best suite your needs and suite your budget. Talk to your Broker to ensure you are getting the best rates available in the market.
