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Fixed Vs. Floating

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By Brendon Ojala

And the winner is … drum roll please … fixing! Fixing for one year to be precise. But, yes, as always, it does depend on your situation.

The good news keeps coming for those with home loans. Not great news if you have money in the bank savings accounts though.

Interest rates continue to nudge down through the month and there have been significant decreases in the three- to five-year fixed rates in particular. However, there are a number of reasons why most banks and economists are still seeing the “sweet spot” at a one-year fixed rate.

Most of our clients are fixing the majority of their loans for one year and many are leaving a small amount in some sort of floating rate (revolving credit or offset accounts) to provide for flexibility/debt reduction. In making these statements, the disclaimer of course is that every situation is different and unique, so a conversation with your adviser is key before settling on an interest rate strategy.

Anyway, here’s why fixing for one year is so popular right now:

The one-year rate is the lowest on the market and, for an owner-occupied property with 20 per cent equity, we are seeing rates of 4.1-4.2 per cent (the 3.99 specials have gone for the mean time).

The Reserve Bank governor has indicated any change in the Official Cash Rate (OCR) is likely to be mid 2020.

Again the Reserve Bank has indicated the next move for the OCR is as likely to be down as it is up.

Although noting there are other things that affect home loan interest rates rather than just the OCR, it does have a major impact.

Given the above (and of course, who knows what unpredictable market shocks will occur?) fixing at the lowest rate and having a really good chance of being able to fix at low rates in a year’s time seems like a sensible strategy for most.

Do let your adviser know before you re-fix your home loan for another period. We can get some rates from the bank for you to consider and talk through your best strategy.

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

Fixed vs. Floating – What gives you better Interest Rates?

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By Graham Goodisson

 

Very little has changed with interest rates in the past six months, but can it last? Graham discusses.

 

In early February 2018, we pointed out that rates were as follows:

·         Floating rate – 5.3%

·         1-year fixed – 4.30%

·         2-year fixed – under 4.5%

·         3-year fixed – under 5.0%

 

Today, in August, it’s pretty much exactly the same. Sometimes the rates shift slightly, but mostly they are as they have been.

 

So, what’s in the forecast? More of the same?

 

Yes, probably more of the same for the coming quarter. We aren’t seeing any major changes in international markets. US markets are slowly increasing but New Zealand, as it has been for some time, is nicely positioned to cope.

 

Right then, what should I do if my mortgage has become floating. Well, if you’re not going to clear it the next 12 months then at least fix for that … longer than that depends on your personal situation and please contact your broker for the appropriate advice.

 

What’s going to happen longer term? Brexit and Trump, along with trade wars, will all obviously have an impact on the global economy and the All Blacks will on the New Zealand economy.  However, it doesn’t seem as though big changes are on the short-term horizon.

 

Graham Goodisson is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

Two Big Shifts in Banks’ Lending

We’ve talked recently about how the banks are tightening the screws of their lending. Here are two recent changes that are creating increasing challenges for borrowers:

 

BANKS ARE CHECKING THE SMALL STUFF

More than ever, banks are going through our applications with a fine-tooth comb. They want to make sure that full-expense budgets have been completed and that these align with bank statements. As an example, we have had deals declined because of two or three unarranged overdraft fees on bank statements.

 

On a similar note, banks want confirmation of where your deposit has come from. So having $30,000 show up in one lump sum into a bank account will raise some questions. The origin of these funds needs to be verified. This has always been the case but our observation is that banks are becoming more particular about these smaller points at the moment.

 

IF IT’S NOT PLAIN VANILLA, THEY’RE NOT INTERESTED

There is no real appetite from banks to do deals that are outside the ordinary—they’re passing up Goody Goody Gum Drops in favour of boring old vanilla.

 

Within banks right now, it seems the credit department is winning over the sales department. They are more concerned about protection and bracing themselves for the uncertainty of the future rather than growing their customers numbers.

 

So, if you are a standard customer with a 20 per cent saved deposit on a good PAYE income, certainly there is no problem getting money. However, if your income is variable, if you are new to business or if the house is out of the ordinary, there are more questions and more challenges being raised by the banks.

 

As always, we will keep you posted with the latest changes. It is our job to stay on top of what the banks are doing so that we are able to provide the best possible advise and mortgage solutions for our clients.

 

Don't hesitate to run your scenario past us if that would be helpful

 

 

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

The Reserve Bank: Implications for Investors

The Reserve Bank is tightening the screws on property investors. Graham discusses exactly what this means.

 

The new rules state that you now need 40 per cent equity to buy an investment property and if it’s a new build (as an investment) then you only need 20 per cent. So, what are the implications? Basically, heaps.

 

The only good news is that it is kind of too late to do anything about it. Banks are honouring existing pre-approvals at 80 per cent for investment properties but under duress and are looking for any opportunity to get out of having to do so.  Why? Because The Reserve Bank will be severe in their punishment of any bank that doesn’t comply with the new enforced ratios.

 

It all emphasises the need for property investors to put even more thought into their purchase or building decisions and to keep a close eye on those debt-to-equity rations. Getting clarification around what proceeds you will actually end up with is imperative. If you have multiple properties, the banks will retain as much of the proceeds as possible to get the new ratios in place. 

 

What does this mean? Check out the video in this Spin edition for clarity or check out our YouTube account: What banks do with investment property sales.

 

Graham Goodisson is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.


Banks’ New Lending Restrictions—What it Means For You

Banks are in the news. In fact, they are all over the news! But the real question is why? And what does it mean for you? Graham finds out.

 

Firstly, please remember that behind the scenes the Reserve Bank of New Zealand is always policing what the banks do and don't do. It also gives the banks strong suggestions about how lending should look … or else!

 

It is no news to anyone that the Reserve Bank is nervous about the Auckland property market. The changes connected to this nervousness are that if you want to buy an investment property in Auckland you must have a 30 per cent deposit available.

 

ANZ have gone a step further and now say that if you own a property in Auckland ALL your investment properties will be limited to this 70 per cent ‘loan to value ratio regardless of the location of those investment properties. ANZ have also said that to buy any owner-occupied property in Auckland you need 15 per cent deposit whereas other banks are still operating, when they can, on only 10 per cent deposit.

 

Also, all the major banks have now restricted their overseas lending towards non-citizens. Basically, if you are not a citizen or resident of New Zealand you cannot use overseas income to prove your ability to borrow and your borrowing will be limited to 70 per cent of the value of the property.

 

So what does this all mean? 

 

I think that it shows banks are preparing for two things:

1) They want to show the Reserve Bank that they are trying to curb speculative lending—stopping people gambling that property prices will only keep rising.

2) That they are preparing in advance so they don't get caught out, like last time, when the property market does slow down.

 

ANZ is particularly leading the charge in the area of preparing for a potential slow down. They have reduced their enthusiasm for apartments being purchased off the plans and for land purchases, not just in Auckland but throughout the country. Other banks have not followed with similar responses but watch this space.

 

So what should you do?

 

Ring us if you want some clarification. If you are in negotiations directly with the ANZ and have property in Auckland then ring us as well. And … finally … don't speculate on land and apartments.

 

Graham Goodison is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.