Official cash rate and mortgage options

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#977494 30-Jan-2014 15:13

The fixed and floating rates will always correlate in some way. The trick is when to lock in rates to try to mitigate rising interest rates, and how long to lock them in for.

hashbrown

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#977495 30-Jan-2014 15:17

bazzer: Long term, I believe it is fruitless to try and outplay the banks. You may come out ahead over some periods but over 15-30 years of your mortgage it probably makes little difference and not really worth worrying about.

+1 You are basically entering into a betting match with a bunch of highly paid economists at the bank. The only way you win is by being lucky.

If a sharp rise in interest rates would put you under financial stress, then cover your bases by fixing some, floating some or fixing for different terms.

The banks will always offer a small discount to fix, so I generally fix every 6-12 months, which is pretty much floating anyway.

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#977511 30-Jan-2014 15:40

joker97:
umm ... do you know the price of houses in Singapore, Australia, London, Toronto ...?

Over 1 million NZD ... guess where people who can't afford to buy houses there will buy? Auckland.
Guess where people who have lots of money will invest? Auckland
Why will they? Mmm ... let me guess ... Not sure ... but why else would they want to buy 30 farms? Mmm ... not sure ...

But NZers aren't earning the same level of wages that they do in those countries, so our houses should be cheaper than those other countries. There problem is that in some places, esp Auck, there has been a big bubble, and bubbles will usually burst. Banning overseas people from purchasing existing NZ housing stock would also help, unless they are moving here to live in them themselves, and become a wage earner and NZ tax payer. They do ban them overseas, and in Oz I believe that they only allow overseas people to buy if they are building a brand new home, which we should bring in here.

mattwnz

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#977512 30-Jan-2014 15:42

hashbrown:
bazzer: Long term, I believe it is fruitless to try and outplay the banks. You may come out ahead over some periods but over 15-30 years of your mortgage it probably makes little difference and not really worth worrying about.

+1 You are basically entering into a betting match with a bunch of highly paid economists at the bank. The only way you win is by being lucky.

If a sharp rise in interest rates would put you under financial stress, then cover your bases by fixing some, floating some or fixing for different terms.

The banks will always offer a small discount to fix, so I generally fix every 6-12 months, which is pretty much floating anyway.

When half of economists say one thing, and the other half say the opposite, you do wonder why they are so highly paid. In this case half picked a rates rise, and the other half didn't.

bazzer

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#977530 30-Jan-2014 16:21

timmmay: The fixed and floating rates will always correlate in some way. The trick is when to lock in rates to try to mitigate rising interest rates, and how long to lock them in for.

My point is that there's no trick to it, it's mostly luck.

bazzer

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#977532 30-Jan-2014 16:22

mattwnz: When half of economists say one thing, and the other half say the opposite, you do wonder why they are so highly paid. In this case half picked a rates rise, and the other half didn't.

I guess they flipped a (fair) coin.

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#977541 30-Jan-2014 16:39

I was always told to only trust a 'one handed' economist. ha ha

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Buzz Bumble

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#977605 30-Jan-2014 18:49

mattwnz:
Or Xero shares when they were under a dollar each, now over $40.

I wouldn't touch any shares with a bazillion lightyear barge pole ... it's a greedy, selfish fool's game.

Handle9

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#977644 30-Jan-2014 20:34

I fixed for 3 years last year as we were planning on having another baby. For us the security of payment certainty was important when we were on one income. If we were on two full incomes I'd have more appetite for risk and wouldn't have fixed all of it.

driller2000

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#977722 30-Jan-2014 22:44

joker97: The reserve bank and the chief economists have said OCR rise since about 5 years ago did you realise that?

The NZ dollar is so strong I don't think the OCR is going up any time soon. The appropriate response is to lower the OCR, but this is not possible because of inflation and the overheated housing market.

My pick is OCR stays flat until the NZD is fixed.
NZD trumps housing and inflation because our country relies on export to survive.

However as long as there is interest in borrowing the fixed interest rates will rise so they can make more money. This statement is my personal belief. The official answer is fixed interest rates depends on borrowing costs from overseas (the banks borrow from offshore and sells the money to you).

I am no economist but economists are never any good at predictions. Ever.

have to disagree to a certain extent...

have been tracking tony alexanders (bnz) updates for 6 years now and as a crystal ball gazer he has been pretty good e.g:

- bases his projections on data - rather than intentions
- does a good job (at least imho as a non economist) of explaining the dynamics behind certain changes / predictions / systems
- recommended a 3 year fix a couple of years ago which got us a good deal (with westpac no less)
- he has also been suggesting floating for the last couple of years and only recently suggested float/fix - and now recommends fix soonish
- has argued a robust supply and demand equation as for the reason why akl housing would ultimately keep rising - incl drivers like migration (int + ext) + employment + undersupply from 2008 onwards (as opposed to hickey and his doomsaying ilk "40% drop coming!!)
- and why nz (akl in particular) would not bottom out post gfc like how the us / ireland / greece did - and again he explained the reasons why and importantly, the differences that existed in each economy and why we got through relatively unscathed
- also brought some actual data to the table re the "offshore asian investors are driving house prices up" fallacy - as opposed to the racially based xenophobic crap bandied around at the time http://tonyalexander.co.nz/regular-publications/bnz-weekly-overview/housing-market/migrant-flows/ (note: he did support the aussie approach where foreigners can buy only new houses - bringing in new investment - but leaving existing housing stock to locals - which i believe has some merit)

anyhoo - i will stop now : )

note:
this rate chasing business is imho only playing at the edges
wanna know a secret to reducing your mortgage and interest payments?
worry less about the interest rate and focus more on the rate at which you pay it back
tadah!!!

http://tonyalexander.co.nz/

timmmay

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#977785 31-Jan-2014 07:13

Apparently a lot of people are fixing... I'm not quite there yet. I don't know if the rises will be as much as predicted, I hear positive things but I haven't seen any real sign of things taking off much, here or overseas. Things are improving, but slowly.

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#977827 31-Jan-2014 09:21

timmmay: So the OCR and hence the floating mortgage rates are staying the same this month, though the reserve bank have indicated it will likely rise in March. The forecasts are floating mortgage rates will rise from around 5.75 now to around 7% by the end of the year. Fixed rates have already gone up in anticipation. Beyond that is anyone's guess. I also read a comment that as fixed mortgage rates are rising already perhaps they may need to raise the OCR less, so floating mortgages may rise less.

What are everyone's strategies for their mortgages? Float, fix, or a bit of both and different fixed terms? If floating goes up to 7% and sticks then staying on floating wouldn't be so bad, as fixed rates aren't far off that already. You also have to take into account that if you fix now for 36 months at 6.6% what would the average rate you'd be paying over that period if you were floating, and what's the rate likely to be when you come off that fixed term?

Right now I'm floating, I saved a lot of interest by breaking out of a fixed term just before the rates took a dive. I don't see much point of fixing for less than three years, as I think the average rate I'd pay could be less on floating. If I go to 4 years that's 7%, which may or may not be less than the average floating rate between now and then.

I guess it's crystal ball gazing, but interested in everyone's thoughts.

Fixed last year, split 2/3rds at 5 years (5.75%) and 1 third at 2 years at 4.99%. Our mortgage is VERY big so it is important to us to have stability in our outgoings.

timmmay

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#977829 31-Jan-2014 09:28

Yeah anyone who's got a large mortgage or is near what they can afford does need to be pretty careful.

Geektastic

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#977831 31-Jan-2014 09:29

mattwnz:
joker97:
umm ... do you know the price of houses in Singapore, Australia, London, Toronto ...?

Over 1 million NZD ... guess where people who can't afford to buy houses there will buy? Auckland.
Guess where people who have lots of money will invest? Auckland
Why will they? Mmm ... let me guess ... Not sure ... but why else would they want to buy 30 farms? Mmm ... not sure ...

But NZers aren't earning the same level of wages that they do in those countries, so our houses should be cheaper than those other countries. There problem is that in some places, esp Auck, there has been a big bubble, and bubbles will usually burst. Banning overseas people from purchasing existing NZ housing stock would also help, unless they are moving here to live in them themselves, and become a wage earner and NZ tax payer. They do ban them overseas, and in Oz I believe that they only allow overseas people to buy if they are building a brand new home, which we should bring in here.

Banning foreigners will make little if any difference.

In an auction it just means that the next richest Kiwi will buy instead of the foreigner - and there is no actual genuine evidence to support the assertion that foreigners buy everything that I can find in any case. It won't suddenly mean that houses become affordable to average wage earners. Neither will a capital gains tax or a stamp duty - both of which have been extant in the UK for many many decades and neither of which have much impact on house prices.

On top of that, foreigners can own shares, so they'll just form companies here and buy through those. Or Kiwis will buy on their behalf for a fee. Or, since they are rich, they will buy investment visas.

It's just a convenient scapegoat to blame foreigners, and more palatable than accepting that many Kiwis have insufficient skills and experience to earn at a level that allows them to compete.

At the end of the day, the vendors could refuse to sell to foreigners if they were so principled, but I don't see many calls for that in the press. Cash is king.

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#977834 31-Jan-2014 09:32

Geektastic:
Banning foreigners will make little if any difference.

Yep. They need to ban everyone from buying more than the one house they actually live in.

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