Interest Rate Outlook for April

It is the first time in three years that the Reserve Bank has lifted the Official Cash Rate which it moved by 0.25% last month. In isolation this move would have little impact on our property market but given it has been laid over the top of the LVR restrictions put in place in October 2013 it appears that we may finally be seeing a slowing of our property market.

The volume of house sales has slowed through the first quarter of 2014, the pace of price increases has eased and the average days to sell a house slowed.

Many economists are predicting total interest rate increases in 2014 to hit 1% (so another 0.75% through the balance of this year) and New Zealand inflation probably accelerated in the first quarter, keeping on track expectations that the Reserve Bank will lift the official cash rate again next week to mitigate the effects of strong growth in coming years.

Of course we also have an election due in September so rising interest rates and dollar would certainly make government nervous. Although the National party state that they have no influence over the Reserve Bank and monetary policy.

The flip side to the rising interest rates is the 10 year highs in migration with over 22,000 net increase in our population last year which continues to drive housing demand. To meet this demand, building of new  homes seems to finally be kicking  in with over 21,000 consents issued in 2013 ( which is the highest number since 2007).    

What does all this mean in terms of a borrowing strategy? Yes, variable rates have increased and are likely to again once or twice this year. This means sitting on a variable rate probably doesn’t make much sense unless you are looking to make lump sum principal reductions or repay in full within the next 6 – 12 months. However, we also caution against fixing in for too long which does carry a premium for the additional certainty. The mid-range fixed rates of 18 months to 2 years appear to carry the most value at present although if you have a sizeable mortgage perhaps a split of longer and mid-term fixed rates would benefit you. It is best to sit down with us to discuss your options.


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