Interest Rate Outlook for July

The Reserve Bank’s ability to have an instant impact on borrowers with its interestrate increases is fading quickly.

Borrowersare flocking to fixed rate mortgages to provide protection against loomingofficial cash rate hikes, which have been well signalled by the Reserve Bank.

The Bankhas been optimistic about its ability to have an impact with OCR hikes becausethree-quarters of New Zealand mortgages have been on floating rates or fixedfor short terms. 

But that may be changing.Thelatest statistics show there was $64.3 billion of home loans on floating ratesat the end of May, about a third of the total by value.That’sdown 1.8 percentage points on the month before, the second biggest drop sincethe data series began in 1998. The biggest fall was this March, down 2.7percentage points.The value of mortgages on fixed terms up to one year have in past months. Fixedterms between one and two, and two and three years are becoming more popular.

There isanother factor that will be causing headaches at the Reserve Bank. On the backof their projected OCR hikes our increasing exchange rate is setting recordhighs almost every week. This is seriously hammering our exports includingfarmers. This is partly caused by the fact the overseas investors seek to gainthrough our higher interest rates so the demand for the kiwi dollar increases.

Bankshave been promoting special rates for two year terms, which have been cheaperthan one year rates in many cases.

Howevermany of these specials have now started to be removed. There are stillexcellent deals to be found if you know where to look. We recommend you start looking bycalling us now on 0508 The Marshall (0508 843 627).


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