Current Interest Rates

Indicative rates current at 20 February 2017

Floating 5.55
Fixed 6 months 4.75
Fixed 1 year 4.45
Fixed 2 years 4.79
Fixed 3 years 5.09
Fixed 4 years 5.49
Fixed 5 years 5.75
Revolving Credit 5.55

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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“2017 a year of uncertainty” – Market Commentary December 2016

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

New Zealand’s economy is firing on all cylinders as it speeds into 2017 with GDP growth approaching 4% and inflation closer to 1%, but the outlook for the housing market and interest rates remain uncertain after the tumultuous events of late 2016.

Longer term fixed mortgage rates have risen 10-30 basis points since early November because global long term interest rates have risen and banks here are trying to slow down lending growth to match their term deposit growth.

Some banks are tightening even more by toughening their lending criteria, particularly to rental property investors and developers of apartments and bare sections. Some banks, including ANZ and Westpac, have slowed their lending growth sharply in the second half of 2016 to ensure they don’t have to go overseas to find funding. Others are still growing lending faster than term deposits, but their interest rates for both floating and fixed mortgage rates have edged up.

Reserve Bank rules now make it tougher to easily and cheaply fill any funding gaps by going up to London or New York to borrow ‘hot’ money on wholesale markets. Recent regulatory changes in London and New York have also made it harder for money market funds to lend to banks, which has increased market interest rates.

This is all feeding through into New Zealand’s mortgage markets, making it harder to get cheap longer term mortgages. ANZ’s December business confidence survey found that a net 32% of borrowers were finding it harder to borrow, which was up from 22% in November.

House price inflation continued to slow in Auckland and the upper North Island in November and December in the wake of the Reserve Bank’s new 40% deposit requirement for rental property investors. But prices are still rising (rather than falling) and underlying demand remains strong given a shortage of at least 40,000 houses in Auckland, still-historicallyvery-low interest rates, record high net migration and gross annual wage inflation of over 5% once growth in the labour force and working hours is taken into account.

House price inflation in the lower half of the North Island and much of the South Island (excluding Christchurch) is also still rollicking along at double-digit rates as unemployment is low and economic growth is strong. Even Marlborough and Wellington fared well in the November sales figures from the Real Estate Institute, despite a hiccup caused by the Kaikoura earthquakes and some issues for some buyers getting insurance quickly. The outlook for 2017 is uncertain though, given the rise in interest rates and the risks of some sort of political and economic turbulence in America, China and Europe.

China has tightened its capital controls over the last month to slow an exodus of funds out of cashed up bank accounts and into global property markets, casinos and businesses that is dragging down the Renminbi currency. Many central bankers and policy makers are watching China’s heavily indebted corporates and shadow banks closely for any sign the recent rise in the US dollar and US interest rates is unleashing the sort of instability in China’s financial system that slows economic growth.

President-elect Donald Trump will be the President of the world’s largest economy by late January, although he has already destabilised North Asia, which is Australasia’s largest trading partner, through his middle-of-the-night tweets. The world can only hope someone takes his phone off him before then.

Meanwhile, there are various elections that could unsettle the European economy over 2017, including France’s Presidential election in May and German federal elections in October.

Closer to home, the surprise resignation of John Key and the arrival of Prime Minister Bill English is not expected to significantly unsettle the economy, but it does change the tone somewhat. English has not been quite the same cheerleader for house prices as Key, and the new Prime Minister has ramped up his rhetoric over the last month about building thousands of new state houses in Auckland to take pressure off housing supply, regardless of what house prices do in a cyclical way.

However, there was one silver lining for the property market in the surprise transition to English as Prime Minister and Steven Joyce as Finance Minister. The Reserve Bank had hoped to advance discussions with English in December over including a Debt to Income Multiple (DTI) control in its policy tool kit. But those talks were cancelled because of the transition, which would make it more difficult to propose, consult and then introduce such a control any time in 2017.

There’s also the risks around an election in the second half of 2017, given Key’s departure could improve the chances of a change of Government – albeit one that is opposed to a Capital Gains Tax (both Labour and New Zealand First are opposed).

2017 is shaping up to be a year of variables. Let’s hope it’s not quite as exciting as 2016.

The bottom line:

  • House price inflation is still running at an annual rate of over 10% nationally.
  • The Reserve Bank has forecast an unchanged Official Cash Rate through 2017 and 2018, although economists expect slow and small rate hikes in the second half of 2018. Inflation remains weak and below the bank’s 2% mid-point target.
  • The US Federal Reserve finally hiked its official rate in December and has forecast three more hikes in 2017, although markets only see two more.
  • Banks are lifting longer term mortgage rates and some are tightening lending criteria to slow lending growth to better match term deposit growth.
  • The key variables to watch in 2017 are China’s bad debt situation, Europe’s financial and political dramas, global inflation and interest rates, the Reserve Bank’s DTI chatter, and Donald Trump’s twitter account.

By Bernard Hickey

(Market Commentary sourced from NZFSG Adviser Services, 21 December, 2016)