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What’s happening to Home Loan Interest Rates ???

The Reserve Bank yesterday reduced the Official Cash Rate (OCR) by 0.25% with ANZ and ASB immediately announcing they were passing on the reduction to their customers, reducing their Variable / Floating Home Loan rates by 0.25%. I believe the other Bank’s will also follow. The interesting part of his statement yesterday was the last sentence “We expect further easing maybe appropriate. This will depend on emerging data.”

 

Currently there is a substantial gap between the Bank’s Floating / Variable Home Loan Rates and their Fixed Home Loan Rates, and even with yesterdays Floating / Variable Interest rate reduction, the gap is up to 1.10% (it was 1.35% prior to the announcement). This is a very large variance and can make a substantial difference to loan repayment amounts.

 

Bank’s fund their Fixed Home Loans through various means and a strong indicator of what is happen to Fixed Interest Rates is the Interest Rate Swap Curves. Looking at the Swap curves this morning after yesterday’s announcement, the rates have all dropped. The 1 year swap curve dropped from 3.30% to where it sits currently at 3.17%. The 2 year swap curve moved from 3.34% to 3.24%. This would indicate their maybe some movement in the Bank’s Housing Fixed Rates over the next few weeks..

 

The longer term outlook still remains uncertain. The impact of the lower Dairy Prices will have a large effect Rural New Zealand, and a construction company owner who has been heavily involved in the Christchurch residential rebuild, has commented to me that the residential side of the re-build is almost finished. These will have a real slow down effects on our economy and due to these factors, I believe Home Loan Fixed Interest rates will remain around the high four to low five percent levels.

 

 

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