​Another week, another attempt to rein in the property market.  So what has happened this week.
 
1.       The Reserve Bank has dictated that Banks and other lenders can lend a maximum of 60% of the purchase price of a property if the buyers are not going to live in the property (investors).

2.       Unlike previous restrictions they have not limited the change to the Auckland market, it is to be nationwide.
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3.       They have also further restricted banks’ ability to lend over 80% to owner occupied buyers.  Previously they could have a maximum of 10% of their lending in that space in Auckland and 15% in the rest of New Zealand.  Now it will be 10% across the country.
 
So what does it all mean and will it stop the property market going up.  The answer in the short term is possibly as the changes did late last year but long term probably not.
 
Interest Rates Will Go Lower
 
The most interesting comment of the week was more around interest rates with the Reserve Bank virtually confirming they will be lowering the OCR at the next review on August 8.
 
I think we can expect a 0.25% cut.  Banks’ are notoriously bad at passing on these cuts but I believe we will see rates of well below 5% for 5 year mortgage money in the near future.
 
Current Best Rates
 
Floating                                5.45%
6 months                             4.50%
1 year                                    4.25%
2 years                                  4.29%
3 years                                  4.34%
4 years                                  4.89%
5 years                                  4.99%
 
Note: These rates are the lenders carded rate and we can always negotiate for a better rate.

Last weeks election result was a windfall for borrowers.

The incumbent National government being able to govern alone or, at worst, with parties just grateful to still be there, is a result New Zealand mortgage holders could only dream of.

Any result that had a cobbled together coalition of the Left would have undoubtedly lead to out of control spending to try and placate all of the various political agendas.

The result would have been to stoke the fires of inflation and push interest rates higher and faster.

All the bluster from many on the left that they would step in and control interest rates by whatever means was just that, bluster.

Whatever your political persuasion, there is no doubt that the current government is a conservative manager of the country’s finances and without any minor players to have to assuage it should continue to run a steady and some would say boring ship.

The result is we can look to standard economic fundamentals to try and predict the future direction of interest rates.

It is already accepted by most that we won’t be seeing any more OCR increases this year and with a continuing strong dollar, weakening commodity prices and no sign of any significant interest rate increases from major trading partners I believe we could be waiting a little while into the New Year before we do.

Current Mortgage Rates

The best rates on offer at present are:

Please note these are carded rates and we can normally negotiate better for clients.

Floating 5.90%
6 Months 5.80%
12 Months 5.85%
24 Months 5.99%
36 Months 6.19%
48 Months 6.75%
60 Months 6.79%

These rates are indicative only and should not be relied on in any transaction

This mornings announcement that the European Central Bank has lowered interest rates in Europe to an all time low of 0.25% highlights the growing issues facing the New Zealand Reserve Bank as it ponders its future interest rate strategy.

Not only do they have some domestic headwinds to deal with but international issues are also starting to pose a distinct threat to global growth and security.

In New Zealand we are seeing a massive slow down in dairy prices and a potential Fonterra milk price starting with a 5.  That and other issues mean we are going to see lower growth than has been factored into interest rates so far.

Internationally though we still see very modest growth in Europe as evidenced by this mornings rate drop.  Australia has so far maintained its rates but not lifted them as its economy shows nothing more than a faint heart beat and in the US the expected cessation of their money printing is happening much slower than expected.

Throw in the possibility of a major international conflict either in Ukraine or Syria and a potential slow down in the global power house that is China and the landscape is very rocky indeed.

It has already been accepted that the OCR will remain as is until early 2015 but there is now the very real possibility that could be longer.

A short term interest rate strategy continues to make sense.

Of course that could all change depending on the events of September 20!!

I have for some time been predicting that the exchange rate will have as much effect on the Reserve Bank’s OCR increases as will the growth rate of the New Zealand economy and yesterday we saw confirmation of that from the Governor and some local economists.

The RB would love to be able to hike the OCR relatively aggressively to slow the housing market and protect against inflation in an economy that is clearly growing relatively strongly.

The problem they have though is that our major trading partners have a combination of continuing sluggish economies as well as no sign of any need to increase their own domestic interest rates any time soon.

That means that any OCR increase here widens the gap between our interest rates and those of our trading partners making it more attractive to invest in New Zealand dollars thereby putting upward pressure on the exchange rate.

That puts pressure on exporters and given that our major exporters of dairy products have seen some quite significant reduction in prices of late I would not be at all surprised to see no change to the OCR at the next review and a much more modest programme of increases over the rest of the year.