Home loan report: Budget stalls rate relief

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Economic events of the past week will be leaving mortgage borrowers feeling bemused. The Government announced a package of tax cuts in the Budget, but the result has been to push borrowing costs up again.

Thursday, May 29th 2008, 9:03AM

by Maria Scott

Tax cuts are seen by economists as inflationary because they increase spending power. The result of last week's tax cutting Budget was to persuade financial markets that cuts in New Zealand's official rate of interest will now come later than expected. Whereas the official cash rate (OCR) had been expected to start falling in September, the expectation is now that it will not fall before October. Further clues are likely to come from the Reserve Bank's next monetary policy statement, due next week.

This has resulted in an increase in wholesale funding costs for lenders and by the middle of this week this had prompted some lenders to start increasing homeloan rates. BNZ increased its Classic two-year rate by 10 basis points to 9.39% and ANZ and National banks have raised their six month and one-year rates. PSIS has also raised some of its short term rates.

Some reductions are still coming through; ANZ and National banks have reduced rates for 36 months or more, which makes the rate over this term lower than over one and two years.

Short and medium-term mortgage rates had been falling sharply before the Budget, making the choice of term for borrowers relatively easy because one and two-year rates were generally the lowest across the market.

However economists are still recommending one-year rates in the expectation that mortgage costs will be on a clear downward path in 12 months' time, allowing borrowers to refinance then at lower rates.

To compare rates among lenders go to the Mortgage Rate Table on the right of this page and click on "full rates table". Note, when sorting according to price rankings that some lenders offer discounts on their advertised rates for larger loans and that brokers may also be able to negotiate reductions on advertised rates.

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