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Longer Term Mortgage Rates Edge Up

Longer Term Mortgage Rates Edge Up

Lending institutions continue to maintain the status quo with floating rates remaining relatively unchanged according to the latest Mortgage Survey conducted by the Real Estate Institute of New Zealand (REINZ) on Friday morning (10 January 2003).

However, REINZ President, Graeme Woodley, said the survey showed the start of an upward trend for longer term fixed rates.

“From these changes, in two, three and five year term mortgage terms, are only a matter of minor percentage points at the moment, it would appear there is an expectation among lenders that the cost of money will move up later this year,” he said.

“While it appears there is currently little pressure on the Reserve Bank to raise or lower interest rates to bring inflation into line with their “medium term” targets, it looks as though New Zealand’s longer term interest rates may have bottomed out.”

Mr Woodley said over the latter part of 2002, New Zealand’s long term interest rates trended downwards under the gravitational pull of lower US interest rates.

“However this downward run in rates looks to have come to an end. Further interest rate cuts in the USA appear unlikely and, as a result, we can expect long-term interest rates to gradually rise later in 2003. Lenders are moving to cover themselves with adjustments upwards in the longer term interest rates they offer.”

Only one lender moved its floating rate upwards – by 0.01 of a percentage point – during the month. Floating rates continue to sit in a band between 6.95 and 7.85 percent with all traditional banking institutions sitting at the latter figure. Six month fixed rates also remain unchanged between 6.75 – 6.95 percent.

Competition in the one year fixed rate market was keen with seven of the 18 institutions surveyed dropping rates by 0.10 percent to sit on 6.85 percent.

The trend for increasing costs of mortgage money emerges in two year, or longer, fixed rate terms. Six lenders increased rates on two year fixed terms during the month with seven institutions moving up three year mortgage rates. Five of the nine lenders offering four year terms also edged upwards, while six of the eight lenders who changed their five year fixed term mortgages also moved up.

“If US long term interest rates rise, we can expect some upward pressure on New Zealand long term interest rates over the next year – and this could account for these minor upward changes,” Mr Woodley said.

“However, the good news is we can expect the impact to be muted as New Zealand interest rates are already high relative to US rates.

“While Dr Bollard retains his conservative approach, we don’t anticipate any large hikes in the cost of mortgage money but it appears for New Zealand home owners that this could be as “good as it gets” for fixed rate borrowing for the time being.”

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