A slow-down in sales
Now that we are in the depths of winter we are certainly seeing a slow-down in property sales and hence mortgage applications via us and the industry. The banks must be really feeling it with the amount of cash being splashed around to encourage clients to “churn.” Obviously growth from new house sales is muted so the only way to achieve growth is to steal the other banks business. The deals we are seeing are as good as I have ever experienced in terms of both cash subsidises and carded rate discounts, plus account fee waivers. The cash subsidies are even available to low equity borrowers which certainly was not the case six months ago. The Banks have learnt very quickly to accurately gauge what low equity lending they can do week to week and therefore are encouraging more applications in this space.
Good news for first home buyers
This is an excellent development for the first home buyers as with more low equity loans being written plus the Welcome Home Loans scheme at least it gives the first home buyer a chance to enter the market. Many first home buyers have been in KiwiSaver for over five years now, so a 10% deposit could be quite easy for them to obtain, rather than the full 20% deposit.
Interest rates
Another OCR review has come and gone and another 0.25% increase to 3.50%. This one however is vastly different as the Reserve Bank has stated that it is now time for a “pause”. Most economists expect the OCR to remain stable now till at least December and perhaps even into the New Year. Also, the announcement was used to “jawbone” the high New Zealand dollar down. This has certainly worked with the New Zealand dollar down from around 88 to 85 against the American dollar and a similar percentage fall against the Australian dollar. This however may be due, just as much to the easing commodity prices. Overall with 2/3rds of all loans back to fixed rates the OCR increase would seem to have little impact as rates have fallen in real terms as this Westpac chart shows.
Interest Rates
Current
Cash 3.50%
2 Year Swap 4.09%
5 Year Swap 4.47%
Two Weeks Ago
Cash 3.25%
2 Year Swap 4.19%
5 Year Swap 4.61%
One Month Ago
Cash 3.25%
2 Year Swap 4.21%
5 Year Swap 4.61%
Most people are popping back to the ever popular two year rate and this rate has been falling along with all long term rates. The banks are offering outstanding value in this space with a one million dollar deal priced at 5.69% recently and HSBC coming out with a headline 5.85% for one, two and three years. Locking in for two years seems a sound strategy as the cycle appears to be already be half over. This Reserve Bank Governor is reliable and with the bank stating that the OCR is heading back to 4.50% or what they call neutral, this may be achieved in the next 12 to 15 months so the two years does get over the hump but who knows what will happen after that!
The five property rule
The best news this month is the delay to the introduction of more home loan rules for rental properties and specifically the change to people holding five or more rentals becoming small business. This change will significantly change the amount of capital the banks will have to hold to finance this group pushing interest rates up to this sector –your sector! Still it will no doubt happen, but very good to have a delay to allow the banks more planning time and the investor more time to strategise.
Please do not hesitate in contacting me if you wish to discuss your own particular set of circumstances.