About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds Other Sites:   tmmonline.nz  |   landlords.co.nz
Last Article Uploaded: Tuesday, February 18th, 9:25PM
Mortgage Rates Daily Commentary
Tuesday 18 February 2020  Add your comment
When will interest rates rise?

ASB economists predict the next OCR tightening cycle will start in early 2022, with interest rates on hold throughout this year and next year [READ ON]

rss
Latest Headlines

Will fixing become normal again?

When fixed-rate mortgages became so popular, the interest rate environment was very different from today. Jenny Ruth asks whether we are going to return to our old ways or will home loans follow international norms.

Wednesday, September 7th 2011, 8:41PM

 

 

A big determinant of whether the tide turns again and we rush back into fixed-rates is whether our interest rates return to their previous pattern.

Back then, short-term wholesale interest rates, on which mortgage rates are based, were much higher than longer-term rates - this, called a negative yield curve, isn't regarded as normal anywhere except New Zealand.
The negative shape reflected the Reserve Bank's limited ability to influence any but short term interest rates while international rates, particularly US Treasury bonds, are the biggest influence on our longer-term rates.

The norm internationally is for short-term rates to always be lower than longer-term rates - as every depositor knows, the longer your investment term, the higher your risk.

So what we used to regard as normal - and many still regard as normal - was actually highly abnormal. And it went on for such an abnormally long time - New Zealand's yield curve was negative for a sustained period between 1994 and 1998 and then was intermittently negative through to mid 2004 after which it remained consistently negative through to early 2009.

Currently, 90-day bank bills are trading at 2.95% while the five-year government bond rate is 4.24%. In July 2008, 90 day bills were 8.46% and five-year bonds were 6.18%.

ANZ Bank's floating rate now is 5.74% and its five-year fixed rate is 7.7%. In July 2008 its floating rate was 11% while its five-year fixed rate was 9.2%.

"With an inverted yield curve, it made absolute sense (to fix)," says Stephen Toplis, head of market economics at Bank of New Zealand. "Not only was the yield curve inverted, but people expected rates to go up."

Fixing was a no-brainer, as Darren Gibbs at Deusche Bank says: "not just because you were paying for certainty, but because they were cheap."

But, in a rational world, certainty normally does come at a cost.

So, are we going to return to "normal" any time soon?

Gibbs says no, barring the global economy turning to complete custard, pushing down our longer-term interest rates, and the Reserve Bank failing to respond by cutting its official cash rate (OCR).

While Toplis expects short-term interest rates will rise more and faster than Gibbs does, he isn't forecasting a negative yield curve either, barring catastrophe.

"The decision (to fix or not) becomes a lot more complex when you have an upwardly shaped yield curve and it becomes more complex again when there's no certainty about where interest rates are going," Toplis says.

"It's very much an environment where individuals have to make decisions based on their cash flow and their tolerance for risk."

 

« Hold the hikes NZIER saysBollard likely to keep interest rates on hold this week »

Special Offers

Commenting is closed

 

print

Printable version  

print

Email to a friend
Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
ANZ 5.19 3.95 4.15 4.49
ANZ Special - 3.45 3.65 3.99
ASB Bank 5.20 3.89 4.05 4.39
ASB Bank Special - 3.39 3.55 3.89
Bluestone 4.44 4.44 4.29 4.34
BNZ - Classic - 3.49 3.55 3.89
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
Lender Flt 1yr 2yr 3yr
China Construction Bank Special - 3.19 3.19 3.19
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 4.75 4.75 -
Credit Union North 6.45 - - -
Credit Union South 5.65 4.75 4.75 -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.65 4.80 -
HSBC Premier 5.24 3.54 ▼3.20 3.69
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kainga Ora 5.18 3.97 4.05 4.39
Kiwibank 5.15 4.20 4.30 4.64
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.45 3.55 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Lender Flt 1yr 2yr 3yr
Pepper Money Near Prime 5.64 - 5.44 5.44
Pepper Money Prime 5.18 - 4.98 4.98
Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 4.45 3.89 3.94
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.39 3.55 3.89
Sovereign 5.30 3.89 4.05 4.39
Sovereign Special - 3.39 3.55 3.89
The Co-operative Bank - Owner Occ 5.15 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
Lender Flt 1yr 2yr 3yr
TSB Bank 6.09 4.19 4.35 4.69
TSB Special 5.29 3.39 3.55 3.89
Wairarapa Building Society 5.50 3.95 4.05 -
Westpac 5.34 4.15 4.09 4.49
Westpac - Offset 5.34 - - -
Westpac Special - 3.39 3.55 3.99
Median 5.34 3.96 4.09 4.39

Last updated: 14 February 2020 10:02am

Previous News

MORE NEWS»

News Bites
Compare Mortgage Rates
Compare
From
To
For

To graph multiple lenders, hold down Ctrl key while clicking in list box

Also compare rates to OCR
Find a Mortgage Broker

Add your company

Use map
About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox
 
Site by Web Developer and eyelovedesign.com