Home loan report: hope at last

Wednesday 30 April 2008

Finally there is a glimmer of hope for borrowers that home loan rates will start falling. This glimmer has been intensified by a little competitive pressure.

The glimmer comes from none other than Reserve Bank governor Alan Bollard who, last week made some comments which have been interpreted as the bank moving towards an easing bias.

For the lazy person reading his official cash rate statement it is difficult to see where this is, but for analysts, who specialise in reading economic tea leaves, the tone is clear.

Bollard said the Reserve Bank "expect(s) that the OCR will need to remain at current levels for a time yet".

This, economist say, is a marked change from the March statement which said that the OCR will stay where it is for "a significant time yet".

While an easing may actually be closer there is no indication when it could begin as the central bank is trying to juggle a number of conflicting events, particularly high inflation and lower growth.

When you put the bank's comments into the real world of consumers, there are signs that rates will come down.

Kiwibank moved straight away to cut its two-year fixed rates. This move received lots of headlines, but one must note that at the same time it increased rates on all fixed terms of three years or longer.

Looking at the wholesale money markets, which is the place banks price their home loans from, you can see interest rate falls. These will hopefully translate into lower home loan rates.

But don't get excited too soon. There is a view that wholesale market are getting ahead of themselves.
For borrowers that means rates may come down, but they could quite as easily bounce up again very quickly.

So what's the best option at the moment?

When it comes to thinking about term, you have various options. If you think rates will come down sooner rather than later then something around the one-year mark is an option. Five-year rates are still very expensive and can be used – but with caution, while floating rates at more than 10% are just plain unattractive.

Perhaps the best advice is to spread your loan term over several maturities, this way giving yourself some insurance in these highly unpredictable times.

When it comes to seeing who has the best rate you have to keep an eye out for deals when they come up. Currently the five big banks have broadly similar rates across the terms for their standard rates. There are a couple of exceptions though.

ASB has taken the lead in the shorter terms (six months and one-year) and priced itself 10 and 20 points respectively below its competitors.

Meanwhile BNZ has taken the lead in the three-year term.

When you add in other lenders it is clear there are other good choices, including some specials and Kiwibank taking ownership of the two-year fixed rate space with a 9.29% rate.

To keep an eye on rates click on the Home Loans section of Landlords.
 

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