Interest Rate Outlook August 2009
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After a period of extended weakness the economy could be set for a rebound late in 2009 and through to 2010 as the country begins to prepare for the 2011 Rugby World Cup, although be prepared for a slow and gradual climb out of the fairly large hole we currently find ourselves in.
Make no mistake the country is still in recession but there are plenty of promising signs, this growth potential is being held down by a rapidly rising unemployment rate and while reduced mortgages rates and tax cuts have certainly helped our pockets, consumer spending remains very subdued as people warily eye their finances.
A stable base for growth is forming, house sales are up 50% from their lows as astute buyers respond to lower interest rates and strong investment yields now available, however still remain 30% lower than the highs of previous years. We expect this momentum to continue for the balance of the year and indeed accelerate slowly as building consents recover from the cellar they are currently in.
There is widespread talk of a shortage of housing which is the justification for house prices increasing. We are not so sure, while there are less houses on the market there is certainly no shortage of vacant land (outside of Auckland) which would drive prices up, as such while property in congested residential areas will see some gradual growth we still feel that the unwind of a lot of speculative land purchases during the last boom will see land prices remain flat for some time.
Aggressive competition for deposits by banks is keeping pressure on long term borrowing rates as banks look to get more long term money on their books. As such we believe that long term 3-5 year rates will continue to remain a good 1.5% above the attractively priced 6 month and 1 year rates. As such our recommended borrowing strategy is still to consider the 6 month or 1 year fixed rates as being of the best value. The challenge for consumers is to decide whether to roll every 6 months or fix for 1 year which is similarly priced but does not give you as much flexibility if you decide you want to fix for longer in the future. We recommend 6 months as the better option and let us take care of the hassle of re fixing for you!
What’s Hot
We now have 2 mainstream lenders back in the game lending above 80% LVR’s the good thing about that is that it allows us to offer a choice of taking the very sharpest interest rate and paying a one off Lenders Mortgage Insurance (LMI) Premium or paying no LMI and having the interest rate loaded by 0.35% – 0.50% depending on the LVR of the loan. – Help your clients, refer them to us!
Deal of the Month
We continue to be leading the market in assisting first home buyers, this month we has a borrower who had been retrenched form his job, found a new job in the same industry so we were able to use his redundancy payment as his 5% deposit on a house and fund the balance through one of our 95% lenders who were fine with the borrower as he displayed continuity of employment even though just in a new job.
