by Maria Scott
ANZ says the recent increases in five-year rates have reduced their attractions.
“These rates still offer some cash flow relief (8.15% compared with 8.5% in the two to three year part of the mortgage curve) but the outright interest rate is now high from a historical perspective.”
The bank suggests that borrowers spread risk by having a loan spread across different terms. It predicts aggressive cuts in the OCR during 2009 and says that two and three-year fixes should be considered to take advantage of lower rates in 2009.
Immediately after the Reserve Bank raised the OCR to 7.5% two weeks ago, rates in the wholesale markets softened slightly. This was because Reserve Bank Governor Alan Bollard said the bank was looking at a variety of measures – supplementary to interest rates - to control inflation in the housing market. The proposals included tighter enforcement of tax on property trading profits.
But this softening was short-lived as financial markets decided that it would take some time for these measures, to be implemented.
“Wholesale interest rates are now higher than they were prior to the Monetary Policy Statement release. Market pricing of a further OCR increase is 45%,” ASB says.
Its economist, Chris Tennent-Brown, says rates are being driven higher by relentless demand for homeloans and international influences.
He says there is demand across all fixed terms, whereas the pressure until recently was mainly on one and two-year terms.
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