It has been a fascinating start to 2015. It’s been the busiest beginning to a New Year that I have ever seen
(and I‘ve seen quite a few!) which bodes well for the year ahead but what about the reversed trend of
interest rates? 2014 was up up up and 2015 seems to be down down down. I personally cannot see any downside,
especially in the long term rates but you never know – look at Australia with their rates currently down to
4.69% for five years so never say never. However their OCR is 2.25% compared with our 3.50%, they did cut
it last week (taking their market by surprise), which also followed a surprise cut in Canada too. I think it’s fair to say that Australia and Canada are the two countries we are able to compare our rates with.
TSB introduced an innovative 10 year rate last week – a first for New Zealand, though very common
overseas. Having said that, I note the NAB’s ten year rate has a seven in it so perhaps TSB’s 5.89% is cheap.Time will tell. Obviously locking in for so long comes with risks as people’s personal circumstances can change quite rapidly. The sale of a home due to ill health, redundancy, job transfer, emigration, divorce etc could potentially crystallise, resulting in a very large break fee so people looking to lock in for a long period do need to consider the pitfalls very carefully. Having said that, in America they can lock in for 30 years so perhaps it can’t be all that bad!
For people reading this column who are still 10 to 20 years away from retirement and have say, five to six
rentals and who intend liquidating half of them at age 65 to be mortgage free and have say, three passive
rental streams, plus the pension, the 10 year term seems very sound indeed – especially at such an attractive rate.
The risk factor in the above scenario would appear low and while I am a huge advocate of the annual rollover
systems, I am certainly not going to pooh-ha the 10 year option offered by TSB in the right circumstances.
Here at Tony Mounce Mortgages we have an Adviser Agreement with TSB and we are very happy to discuss
this option with CPIA members. It will be interesting to see who is going to be the next cab off the rank – the BNZ seven year rate introduced some 15 odd years ago was innovative at the time, so they may be next!
Deals Deals Deals – the competition is intense out there and the large discounts and cash incentives continue for 80% deals and lower, however for quality 90% deals the cash incentives are back too. One thing is certain – if you don’t ask, you don’t get and shopping around through an Adviser is very wise as we see all the lenders offers so know just what is available on any one day. To say the situation changes daily is not exaggerating and I am often surprised just how good the deals are that we are getting for our clients. To obtain the best deal you do have to sign a pledge to remain with the lender for two to three years, however I do believe this to be a fair ask and it is quite likely that some of a split portfolio will be in that longer piece anyway so nothing lost.
The Reserve Bank and LVR’s and the Five Property Rules
I was surprised that in a well advertised speech on Thursday, no specific policy measures to try and quell the Auckland property market were announced and perhaps anything apart from the present LVR rules are just too hard to implement. We all know that what goes up will eventually come down. However the big thing with property in New Zealand is that the corrections have never been huge like they are over overseas. Subsequently the New Zealand property owner does not see the risk, so things will just continue until a correction does occur. The question is what size will it be… and nobody knows!
As always, if you have any mortgage matters to discuss, please contact me on 027 474 7550.