Wellington Property Investors' Association

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30-11-2007

Some relief on 2yr rates

After a succession of increases in mortgage rates over recent weeks several lenders have now cut two year fixed rates.

By Maria Scott

This follows reductions in the wholesale borrowing costs in the United State that exert a strong influence in the pricing of fixed rate loans in New Zealand. These wholesale rates have fallen from 10-year highs earlier this month, a response to the worsening economic outlook in the US.

It is possible that the recent fall in international borrowing costs signal the start of a general fall in rates, but it is too early to assume this. Rates have moved down on other occasions in recent weeks although the general trend has been upwards.

Fixed borrowing costs are still attractive compared with the floating rate charged by most lenders. But there are some sub-10% floating rates in the market, including the rate linked to BNZ's Total Money packaged account. At less than 10%, floating rates begin to look more attractive against fixed rates than they have for some time if you are willing to take a bet that borrowing costs really will be on the way down soon.

The next significant event in the domestic mortgage market is the Reserve Bank's review of the Official Cash Rate next week.

Among economists polled so far by Good Returns there is a strong consensus that the central bank will keep New Zealand's official rate at 8.25%. The view is that the bank is awaiting further signals about the economy and whether inflationary-pressures are receding before changing the OCR again. The economy is slowing but not rapidly and some economists believe that there is still an outside chance of a further increase in the OCR in coming months.

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