mortgages wellington

Fixed vs Floating: New Year, New Interest Rates?

Starting off 2019, interest rates are staying low but the Reserve Bank may have a trick up its sleeve that could have a downstream influence on the great fix versus float debate. Brendon explains.

 

There has been some post-Christmas sharpening of home loan interest rates. 

You will see a 3.99 per cent for one-year and two-year loans currently being advertised. This normally applies for "main bank", owner-occupied clients (in other words, not for low deposits or investor-only clients).

 

From an economic perspective, there doesn't seem to be any upward pressure on these rates for 2019. Interestingly enough, the only pressure that may come to bear is a potential Reserve Bank/government regulation requiring banks to hold more capital.

 

The Reserve Bank has suggested that the percentage of "money [that] banks have in hand per amount of loans outstanding" may need to increase to better protect the banking system from any economic shocks (known as capital adequacy ratios). If this is implemented, it will effectively increase banks’ running costs. Unless the shareholders are willing to take lower returns (??!!), then the customer will pay—at banks, this means increases in interest rates.

 

So, should you fix or float?

 

Securing an interest rate under four per cent isn't bad!

 

Up until now, most of our clients have been fixing for one year because that was the lowest rate and because the expectation was rates would stay low for another year, giving time to re-fix in a year for a still low rate. 

 

The only spanner in the works to this approach is the possibility of the above regulatory change, which still remains to be seen. The potential for changes introduces some uncertainty to the mix and some of our clients may choose to minimise that risk by fixing for two years, at what is now a great two-year rate.

 

Be aware that all clients won't get that exact rate, as it is case-by-case, bank-by-bank. If you have good equity, you should be getting close. Note also that everyone is different, so how long you fix your loan for may be different than the next person.

 

Also note that it is often wise to keep some flexibility. Channelling any cash surplus to your home loan in a smart way can surprise many with the difference it can make.

 

We can work that all out for you.

 

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's new, what's old and what to do about it

While the OCR remains unchanged, most interest rates are inching up … what’s going on? Brendon explains.

 

Here is what I have noticed in the last month or so …

 

1. Interest rates have nudged up bit by bit

We are seeing most banks increase their rates by around 0.1% over the majority of their term periods. Although the Official Cash Rate is firmly grounded, these rates are rising because the sources of the banks’ money are rising. Firstly, deposit rates are rising so that banks can attract more deposits, and, secondly, international interest rates (of which banks pay to get some of their money) are also increasing. These increases are being passed on to us, the homeowners.

 

2. There are noticeable differences between banks

The interest rates that banks are willing to offer their clients are varying between banks. For those banks wanting to "grow their mortgage book", there are some good discounts on rates. The banks that are not discounting are either happy with their current mortgage share or their other “banky type ratios” are at their “banky limits” so they have no wiggle room left—they simply aren't interested in competing on rates. 

Given this variation between banks, the old trick of shopping around and going back to the bank with the other banks’ rates isn't having much of an impact, if any.

If the bank is your "main bank"(generally defined by the fact that your salary or wages are going to that bank) then you will get better rates.

 

3. Banks are giving significantly different rates for investment property loans as compared to owner-occupied loans

The reason for this difference is that new regulations make banks hold more capital for different types of loans. Investment property loans are more costly for the bank and they are passing these costs on.

 

4. Interest-only loans are harder to get

Many banks are only allowing interest-only loans on investment property and then are limiting it to say five years tops. At Velocity Financial we currently need to find highly compelling reasons for banks to agree to interest-only loans on owner-occupied property.

 

5. More now than ever, it is hard to say what a good rate is ...  it depends on all of the above

The above points also mean a good strategy is more individualised than ever. As always though, you fix for certainty—the more certainty you want, the longer you fix (but the higher rate you pay)—and the more flexibility you want, the more you have in some form of floating loan account.

If you are in more of a complex situation with multiple properties, working with us, your accountant and your lawyer, to design the best strategy is increasingly important. To fix or float is just the start! Often we will be working with multiple entities with multiple loan products at multiple banks. We don't want to complicate things for the sake of it, but having this set up correctly can enable our clients to get ahead quicker, to be as well protected as possible and to make significant savings.

If you have a simple set up or need a complex configuration we are happy to work with you to ensure your loan structures are well thought out and optimised for today’s climate.

 

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.

 

 

 

Anyone confused about the Wellington housing market?

Lance provides a metaphorical weather report on Wellington’s turbulent property climate.

 

There was a time in Wellington when slow and steady would win the house-purchasing race. Back then there were no sudden spikes in house prices, 3000 people weren’t joining you on a Sunday trekking from open home to open home, and you didn’t have to go “all in” to purchase.

So, where is the climate at now? What is it like out there today in July 2017?

Well, let’s start by painting the picture back in mid-2015 when it seemed there would be no slowing down of Wellington’s rapidly increasing house prices. Everything was fast pace. Unconditional offers were all but essential. For some, these were exciting times, for others, soul-destroying, as people were smashed out of the park with what seemed to be “crazy prices”.  

So what could stop or even slow that frantic market? How about some good old Kiwi earthquakes? At the end of 2016, the earthquake(s) caused house insurances to become a little complicated. People started calculating the cost of the damage and this seemed to be the moment that the housing frenzy took a breather.

Then enter 2017.

Now the market is a little confused. Certainly less of a frenzy than before the earthquakes, but most houses are still going for good money, most are still getting multiple offers, and there are some exciting building developments around our region. Add to all this, our dogged belief that Transition Gully is the answer to all of Wellington’s problems and we live in a 2017 that still has a current shortage of stock (properties to purchase) and a mass of people wanting to buy.

So how do you become one of those who successfully buys in 2017? Well, those who are ready to go “all in” are still more likely to win. And if you are wishing to purchase, the Civil Defence moto stands true, “Be prepared.”

So when you find the right place to buy and you want to hit the ground running with your bid, be sure to give us a bell so we can help get your financial ducks in a row.

 

Lance Shearman 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.