Interest Rate Outlook for July

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

Borrowers are flocking to fixed rate mortgages to provide protection against looming official cash rate hikes, which have been well signalled by the Reserve Bank.

The Bank has been optimistic about its ability to have an impact with OCR hikes because three-quarters of New Zealand mortgages have been on floating rates or fixed for short terms. 

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

There is another factor that will be causing headaches at the Reserve Bank. On the back of their projected OCR hikes our increasing exchange rate is setting record highs almost every week. This is seriously hammering our exports including farmers. This is partly caused by the fact the overseas investors seek to gain through our higher interest rates so the demand for the kiwi dollar increases.

Banks have been promoting special rates for two year terms, which have been cheaper than one year rates in many cases.

However many of these specials have now started to be removed. There are still excellent deals to be found if you know where to look. We recommend you start looking by calling us now on 0508 The Marshall (0508 843 627).


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