• Media make rate rises more dramatic than they really are
  • Interest rates getting back to normal
  • Lending criteria remains conservative
  • To fix or float?

Are your hands getting numb yet? Surely consumers must have pins and needles by now because as an economy we have been bashed about so much over the past couple of years the majority of the market is taking the ‘wait and see approach’.

Media make rate rises more dramatic than they really are
New Zealand is actually making the slow and steady recovery we needed (bouncing back would have been suicidal). The problem is that media tends to focus on and highlight the negatives that continue to come out, whether it be the small interest rate increases we have expected (published as ‘hikes’ — far more dramatic!) or the sluggish real estate market when in fact these factors are normal in a slow, bumpy recovery which looks and feels more like small waves in a bathtub than the negative sentiment the media promotes.

Yes we did get a 0.25% increase in the Official Cash Rate at the end of the month but that was well and truly expected. Guess what? We’ll probably get another two to three similar moves before the end of the year, but remember the world economy was in such ‘free fall’ eighteen months ago that drastic measures were required and taken to protect us all from a depression like environment — who could forget rates being slashed to historic lows in a matter of months.

Interest rates getting back to normal
As such the next two or three increases do little other than restore us to a more ‘normal’ interest rate environment which is required to ensure that we don’t return to a debt fuelled recovery. We expect the banks will react to the OCR increase this week by passing on the 0.25% increase.

This economic recovery is not about the housing market jumping back out of its skin, it is being driven by slow, sustainable manufacturing growth, increased productivity and a reduction in household debt.

Lending criteria remains conservative
We continue to be restricted by a lack of available credit with banks remaining extremely conservative. But in a bizarre twist this actually drives our business as more consumers who thought their bank was their friend have found out they are not so willing to lend! As such they find themselves at our door with far more options and our clients are constantly amazed that we can turn a bank ‘no’ into another bank ‘yes’.

To fix or float?
This is certainly a tough question in the current environment but with the difference between the floating rate fixed rates narrowing perhaps now is the time to fix for 2-3 years. BNZ forecasts are picking average floating rates in the mid 7% over the next 2 years and if that pans out taking, today’s 2 year rate in the high 6% range is better value and could look like great value this time next year.

 

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

Join me on Google Plus