We've seen most major lenders bump their medium term (2 and 3 year) fixed rates up by about .10%. Why this is and what you can do about it are explained below.
This is entirely unexpected to most consumers as the media keeps reporting future OCR drops and the housing boom but in reality there are definitely some strong factors at play in pushing the cost of this pricing up. The three major reasons being quoted by the banks are below
Lack of deposit funds
With interest rates so low the banks are struggling to attract enough deposit funds to match their growing lending books. Although some funding comes from overseas they are still required to hold funds in NZ and are having to increase deposit rates to secure money. This cost is directly passed on to the borrower.
Changes in regulation
There have been changes in regulations in NZ and Australia which require the banks to hold more funds for each dollar they lend out as a mortgage. Naturally this will decrease their margins and force them to increase interest rates to ensure they're still profitable.
Financial Markets across the world are still relatively cautious and prone to unstable movements. Although there is a lot of liquidity internationally the low cost money in some economies (where they're more or less paying people to take money) doesn't find it's way to NZ that cheaply. Especially when currency fluctuations have to be considered.
So will rates drop?
If I've learnt one thing in the past ten years it's that my crystal ball isn't always accurate. There is some pressure on the Official Cash Rate to drop further and if this does we may see a further drop in the floating rate.
However with banks using methods other than the Reserve Bank on call funding to secure the money for their fixed terms this won't immediately effect fixed terms. We would need to see a downturn in the future cost of funding to see any drop in the fixed term rates.
What should you do?
As always the right option really depends on your personal situation but I definitely think that everyone needs to consider how a rate rise would effect their budget and make a plan accordingly.That's where we can help
We'll work through a budget and a plan for your future and suggest how the right balance of fixed rates can ensure you achieve your financial goals.
Of course we'll then negotiate the best interest rates and take care of fixing your home loan with your own bank or finding a better deal free of charge.
So if you'd like to discuss your future interest rates or a fixed rate expiring soon get in touch with the team.
Adam, Claire and The My Mortgage Team