The Housing Market
Despite Reserve Bank assumptions of an upswing in the housing market, our sources point to the fact that consumers are holding back.  In fact there appears to be a downswing in the number of building consents issued and this can be expected to continue and could fall further.  If this is true, and I believe it is, then we won't see dramatic rises in the OCR as has been predicted.  In fact it is likely to be slower than we have formulated below.  Nevertheless those borrowing for mortgages should base their risk strategy around higher rates, for while the OCR may stay lower, the cost of funding for mortgages from overseas borrowing, could impact on interest rates, independent of the OCR.

Mortgage brokers and planners are finding themselves more in demand, for the advice and guidance they are able to give. This is not just for arranging the initial loan but for ongoing advice as to when to fix, how long to fix for, where are rates going, best taxable structure for my loan, etc.
We expect rents will rise this year as much to keep in step with re-valued property assets as due to an expected shortage of rental property in sought after areas.  Also landlords will be forced to treat their portfolio as a business and will look to more realistic returns for the capital outlaid.
 

The Official Cash Rate (OCR)

Key Dates:  
16/9/10    Monetary Policy Statement
28/10/10  OCR Announcement
9/12/10    Monetary Policy Statement

The Reserve Bank has the right to change this schedule should it be necessary.

Commentary –  On 29 July the OCR was raised by a further 0.25% on the back of a similar rise on 10 June, which was the first one after over 12 months.  The OCR now stands at 3%.  Often the wording around the announcement gives a clue as to what may happen with interest rates in the future.  He said, "...world recovery ...remains fragile ...demand in economy is subdued ...although it is growing (albeit tepidly)".  He went on to say that he didn't expect a sharp rise in rates.  In other words there are likely to be pauses (we earlier factored in this December and next January OCR's to reflect a pause), but could now expect at least one other pause.

Our 'Rate Watch' commentary (available by emailing ratewatch@mortgagehelp.co.nz) is comprehensive and should be requested.  It is also ongoing.  Everybody's situation is different.

Fix or Float your Mortgage
Expectations remain for rates to peak end of 2011 or early 2012 when residential mortgage floating rates could be around 9%.  A return to lower rates could be expected in 2013.  More New Zealanders are either floating their mortgages or keeping a higher proportion on a floating rate.  This hinges around expectations that over time their average rate will be around 7.5% and they can make inroads into the principal while rates are low.  It also means that the OCR, as a tool for the RBNZ, is more immediate in it's effect as there won't be such a long lag period in response to OCR movement, by those consumers comfortable on their fixed rates.

There is more to this and our 'Rate Watch'' commentary covers this in depth as to what may be the best strategy and what is expected of interest rates in the next few years.  You can request your free copy by emailing ratewatch@mortgagehelp.co.nz.  We would expect short term (6 months - 2 years) fixed rates to move up just before or after the next OCR announcement.

Basic Mortgage Philosophy
Fix long under 7% (4-5 years).   Fix short over 8% (no longer than 2years).  Think averages over length of loan.  Average rate last 30 years - a little over 7.5%.  Average rate next 10 years - likely a little higher than 7.75%.           Plan for rates of over 8% - ie build in reserves or set repayments at that level.  Suggest to always keep repayments at amount required to repay at 7.5% over 25 years.

Repayment programmes are individual and we design plans or strategies for our clients to fit their situation, with the object of being able to ride the highs and take advantage of the lows. 

Contact us at info@mortgagehelp.co.nz for your individual consideration.  You deserve it.

Please don't hesitate to email or phone us if you are contemplating buying a property or properties whether for yourself or for investment. We will look at your situation now and what you want to achieve in the future, so that we can structure your borrowing with the right package from the right lender for you. All this is backed by our Unique Performance Guarantee.

Disclaimer:  This information is intended for general information only and IFL Associates Ltd, Mortgagehelp.co.nz Ltd or the author accept no responsibility for any action or interpretation taken as a result of using this information.  You do have the opportunity to put in place a plan authored by ourselves tailored to your individual situation.