Wellington Property Investors' Association

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16-05-2008

OCR cut of 50 points forecast

If you are in the market for a mortgage you should be able to obtain a fixed rate deal that is significantly cheaper than what you would have paid a week or two ago.

Most of the large banks have reduced at least some of their fixed rates over the past week. The steepest reductions have been for one-year money although there have also been reductions over three and four years.

As reported on Good Returns yesterday ANZ, National Bank have dropped their one-year rates 55 and Westpac has shaved 45 points off its rate.

On $100,000 of borrowing that works out at savings of $550 and $450 a year.

Fixed rate loan costs are coming down because the banks' funding costs over these periods are falling. This is being fuelled in part by increasing expectations that official rates in New Zealand will be coming down sooner rather than later. These expectations have been heightened by signs that the economy is weakening quickly under the strain of high rates.

Unemployment is rising, as confirmed by the latest statistics on the labour market, released last week. It may be small compensation if you have lost your job that it will cost less to refinance your mortgage than it would have a few weeks ago.

Economists have been pulling forward their predictions of a cut in the official cash rate, with September seen as a strong possibility. ASB is now talking about a 50 point cut in September.

The changing outlook on rates is convincing economists and advisers that shorter term fixes are the best bet now. Westpac says that those willing to take a punt might go for six months but "for those who require more certainty, given that funding costs could still blow out, we suggest a one-year rate should see us through the turmoil".

Chris Downes, a Mike Pero Mortgages broker in Christchurch says clients are asking for one year and 18 month terms.

Neil Inns, of Auckland broking firm Professional Finance says borrowers should tailor their financing to what they can afford rather than fixing on the popular recommendation of the moment. He favours splitting borrowing over a variety of terms, but even so, he would not fix for longer than 3 years at present.

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