by Bernard Hickey Managing Editor of interest.co.nz
The Reserve Bank of New Zealand has held the Official Cash Rate (OCR) at a record-low 2.5%, as expected. Governor Alan Bollard said the global economy remained fragile and growth in New Zealand was modest. He said inflation pressures were reassuringly under control and it remained “prudent” to hold the OCR at 2.5%.
What does this mean for rates?
Most economists expect mortgage rates to remain near their record lows for the foreseeable future because the OCR is unlikely to be increased until after September this year. Some even think the key rate could be cut if the financial crisis in Europe worsens markedly. Most expect the OCR to be hold until September at the earliest and some are saying it could be on hold until well into 2013.
Floating rates
Advertised floating mortgage rates have been broadly unchanged at around 5.7% for almost a year and are likely to stay that way until the OCR is increased, although borrowers can often get cheaper deals through their brokers because the banks are competing hard for business. There is the remote chance that banks may choose to pass on the higher interest rates they are starting to have to pay on their foreign borrowing, but the Reserve Bank has said it is watching this and may use the OCR to offset any increase in floating mortgage rates. This means most expect floating rates to remain on hold until late 2012 or early 2013 at the soonest.
Fixed rates
Fixed mortgage rates have edged lower in recent months, but remain at or only slightly below floating rates, making the fixed vs floating decision a tougher one. Fixed rates depend more on wholesale interest rate moves rather than the OCR. Despite all the turmoil in Europe, New Zealand wholesale interest rates have been flat to falling in recent months because of subdued inflation and economic growth.
What does this mean for the property market?
The prospect of lower interest rates for longer is encouraging many first home buyers to borrow and buy, particularly in Auckland and Christchurch where a shortage of undamaged and watertight buildings is putting upward pressure on house prices. Elsewhere in New Zealand, where there is more housing supply and less migration, house prices are subdued.
If you’d like to talk through what this means for you and your mortgage, give your Roost mortgage broker a call.