They're off again

There is particular pressure on two-year rates although one lender, Global Home Loans has increased rates across the board.

Louise Ledger, director of Christchurch-based Global said that funder GE had put up its two year rate but that the across-the-board increase in rates were a result of a review of Global’s own margins. The company had not moved its margins for six years but the cost of processing and holding loans had increased in the tightened credit environment.

Global has just launched its first loan aimed at borrowers with past repayment problems. The product has rates set according to the risk indicated by the borrower’s repayment history, ranging from 1.5 percentage points to 4.5 points over Global’s standard floating rate of 10.5%.

Ledger said that the company had been inundated with applications. The launch came at a time when other lenders had withdrawn products aimed at this sector of the market. The Global product was funded by GE.

Rates charged now by several non-bank lenders are significantly higher than those charged by mainstream banks but Ledger said that rates were not the only factor that counted for borrowers.

Meanwhile, economic trends continue to point to generally high rates in New Zealand, quite apart from the pressures on individual lenders and their funding costs. The annual rate of inflation for the year to March, announced yesterday, was 3.4%, a level that has prompted warnings from economists that the Reserve Bank will be cautious about cutting the Official Cash Rate in coming months.

ASB’s latest economic forecast, released today, says that the economy will slow markedly this year but inflation will remain a problem and that the OCR will remain high until early in 2009.

Several economists have noted recently, however, that there is a possibility that rates in New Zealand could tumble hard and fast if the economy deteriorates rapidly. This might persuade those shopping for rates to look at fixing for a year or less but this would be quite a brave move, particularly for an entire mortgage. A less risky strategy would be to spread borrowing over a variety of terms, possibly favouring two-year rates.