Current Interest Rates

Rates current at  25 March 2015

Floating 6.70
Fixed 6 months 5.80
Fixed 1 year 5.59
Fixed 2 years 5.39
Fixed 3 years 5.59
Fixed 4 years 5.89
Fixed 5 years 5.85
Revolving Credit 6.70

For more information regarding interest rates or current specials phone 0800-800-590 (7 days) or email info@mortgagecare.co.nz

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Interest Rate Outlook – March 2015

This Interest Rate Outlook has been brought to you by one of New Zealand’s Top Financial Journalists, Bernard Hickey:

The New Zealand economy and housing market got a good dose of  ’Goldilocks’ porridge in March – not to hot and not too cold – just right.

Strong growth in spending, employment and Auckland house prices happened at the same time as very low to no inflation and falling interest rates. Even Reserve Bank Governor Graeme Wheeler had to admit that he couldn’t put up the Official Cash Rate (OCR) despite annual house price inflation in Auckland rising to 14%.

Wheeler left the OCR at 3.5% in March and revealed a flat interest rate outlook right through to the beginning of 2017. He even painted a scenario where short-term interest rates could fall within a year if inflation expectations kept falling like they have over the last 18 months.

Like central bank Governors all over the world, Wheeler faces surprisingly low inflation and fast-rising asset prices thanks to low interest rates. But unlike most other developed economies, New Zealand’s economic growth has galloped along at over 3% thanks to the Christchurch rebuild, a surge of new house building in Auckland and plenty of spending by consumers with extra cash in their pockets because of lower petrol prices.

But all that growth is not generating enough inflationary pressures for rate hikes. Wheeler forecast that inflation would actually hit 0.0% this year, which is well below the 1-3% band he is supposed to target. He argued he could ‘look through’ that low rate and not cut rates because the oil price fall last year was a ‘one-off’ and responsible for 0.9% of the fall in inflation. He also pointed to the strong New Zealand dollar for three years of deflation in prices of imported goods.

Auckland housing not stopping him

Wheeler also surprised a few people by saying the resurgence of Auckland house price inflation over the summer was not a factor in his thinking on interest rates. Some people have worried he may either hike interest rates to try to put out the fire in Auckland, or not cut rates to avoid pouring more petrol on the fire.

He said he wasn’t seeing the same sort of ‘wealth effect’ spending in Auckland that was seen in 2006/07, when mortgage lending grew at more than 15% to pay for holidays, boats and baches that pumped up local consumer price inflation to close to 5%.  He also pointed to the failure of an attempt by Sweden’s central bank in 2010 and 2011 to hike interest rates to burst a housing bubble. That just drove the Swedish economy into deflation and the Riksbank has since been forced to cut its official interest rates to -0.1%.

The implication is that Wheeler would be comfortable cutting if he was confident inflation expectations had fallen, and won’t hike rates to target house prices.

What about his other fire-fighting tools?

But not wanting to use the OCR to slow the Auckland housing market doesn’t mean the Reserve Bank is relaxed about it. Wheeler said he remained concerned about the risks to financial stability and pointed to the Reserve Bank’s early-March proposal to force banks to hold more capital against rental property loans.

The Reserve Bank regulates the capital requirements for banks and has asked for feedback on a plan to create a new sub-category of mortgages that includes mortgages for landlords. It’s unclear yet how much extra capital the banks would have to hold and how much they would increase interest rates for landlords to account for their higher capital requirements. The new policy is due to start from July 1 and be phased in over nine months so there’s time for those who want to buy property before the new rules apply.

The bottom line

  • Auckland house prices are rollicking along at double-digit inflation rates, while the rest of the country is bumbling along at low single-digit rates.
  • The Reserve Bank won’t be hiking the OCR any time soon for either inflation or Auckland house price reasons. It may even cut the OCR later in 2015 if inflation keeps being surprisingly low.
  • The Reserve Bank is preparing to change capital rules, which might increase interest rates slightly for rental property mortgages in mid to late 2015.
  • Fixed mortgage rates are low and falling because long term interest rates globally are being pushed lower by deflation and central bank money printing and bond buying.

(Interest Rate Outlook sourced from NZFSG Adviser Services, 16 March, 2015)