The Reserve Bank left the Official Cash Rate (OCR) unchanged at 2.5 percent at it’s last announcement on 25 October 2012.

Reserve Bank Governor Graeme Wheeler said: “the global economy remains fragile, with further recovery heavily dependent on policy implementation. That said, market sentiment has improved from earlier in the year, suggesting the risks to the global outlook are more balanced.

“Domestically, GDP continues to expand at a modest pace. Housing market activity is increasing as expected, and repairs and reconstruction in Canterbury are boosting the construction sector. Offsetting this, fiscal consolidation is constraining demand growth, and the high New Zealand dollar is undermining export earnings and encouraging substitution toward imported goods and services.

“While annual CPI inflation has fallen to 0.8 percent, the Bank continues to expect inflation to head back towards the middle of the target range. We will continue to monitor inflation indicators, such as pricing intention and inflation expectation data, closely over coming months.

For now it remains appropriate for the OCR to be held at 2.5 percent.”

Over the past six weeks our financial markets have been particularly volatile. Most people are aware of the falls in the world share markets due to the deepening European crisis but other markets have reacted as well. Our currency, against the USA, has dropped from around 82 cents to around 75 cents today. Similarly interest rates have dropped as well. Ten year government stock rates have moved from just over 4.0% to around 3.4%. This has seen some further competition in the shorter end of the prime mortgage market. The markets are telling us that economic conditions are going to be quiet and so lower interest rates will be with us for longer. The budget is unlikely to affect this outlook at all.

Sourced from General Finance Mortgage Commentary

Australia, last week, lowered its overnight cash rate and mortgage decreases followed. Our Reserve Bank has stated that our exchange rate is too high, our Government will not meet their fiscal targets, inflation is subdued and our unemployment is slowly rising. As we have stated previously, our Reserve Bank should decrease interest rates further, which would assist those with mortgages, as well as the export sector via a lower exchange rate. This is unlikely to ignite the housing market. A small portion of the market is active and appreciating, but this is confined to the inner Auckland suburbs.  The rest of the country can only be described as stable. Christchurch is a bit of an exception. Let’s hope our Reserve Bank follows their Australian counterpart.

The Reserve Bank today (26 April 2012) left the Official Cash Rate (OCR) unchanged at 2.5 percent.

Reserve Bank Governor Alan Bollard said: “Inflation is restrained and is expected to stay near the middle of the Bank’s target range.

 “The domestic economy is showing signs of recovery. Housing market activity continues to increase and a recovery in building activity appears to be underway, as forecast. That recovery will strengthen as repairs and reconstruction in Canterbury pick up later in the year.

 “However, the global outlook remains of concern. Near-term indicators have moderated and financial market sentiment is still fragile.

“The New Zealand dollar has stayed elevated despite recent falls in commodity prices. Should the exchange rate remain strong without anything else changing, the Bank would need to reassess the outlook for monetary policy settings.

“For now, it is appropriate for the OCR to remain at 2.5 percent.”

Interest rates are at lows not seen since the early 1970s. Rents, particularly in the major cities, are high and are continuing to rise. In many cases, it costs now roughly the same to own a property as it does to rent it. If your income is relatively secure, this is now the time to consider owning your own property. Mortgage rates are low, but if you are worried about them rising and making it harder to meet your repayments, it is now easy to fix them and protect yourself. Many renters complain about the quality of their accommodation. By owning, you can steadily improve your property and this may be reflected, over time, in an increase to the capital values.

Have you been thinking about Expanding your Investment Property Portfolio?

You might be surprised to know most of the major Banks have gone to some lengths to make it a lot easier for clients to qualify for residential investment property finance. You may already have sufficient equity in your existing properties to fund a new addition 100%. Interest rates are very low and due to recent events offshore they may well remain that way for a lot longer than expected just a few months ago.

There is often a huge difference between what one bank is prepared to lend a client compared to another bank. Using a professional Mortgage Adviser makes good sense. We will save you a lot of time not just getting you pre-approved but also explaining the various options available to you across a range of lenders. Pre-Approvals generally last for 4-6 months and enables you to be a ‘Cash Buyer’ ready to act in what can often be a competitive situation if a few people all want the same property. We also negotiate interest rate discounts on your behalf and tailor facilities to best suit your needs & cash flow.

Despite an increasing number of people expecting house prices to rise, overall confidence in the housing market fell during the July quarter, according to the latest ASB Housing Confidence Survey.

“House price expectations remain highest in Auckland, consistent with recent data showing a tighter supply of housing in this region compared to the rest of the country,” said ASB chief economist Nick Tuffley.

“Despite the boost in price expectations across New Zealand, however, housing confidence still dropped slightly, reflecting a continued caution in the market.”

The ASB Housing Confidence Index edged down two points over the quarter, with a net 25% of respondents saying now was a good time to buy a house compared to 27% in the previous quarter.

On house price expectations the survey found 44% expect to see prices rise, compared to 35% in the last quarter.

The survey also found an increase in those expecting higher interest rates, up from 46% in the previous quarter to 54%.

“Signs the economy has been improving have no doubt contributed to household expectations that the Reserve Bank would raise the OCR earlier. However, there has been significant volatility in global markets since the survey was taken, which adds some uncertainty as to when interest rates will rise,” said Tuffley.

Given the nature of the Auckland market, Tuffley said he believed the region would see the strongest price growth over the coming year, with more modest gains nationwide.

“We expect house prices nationwide to grow modestly at a rate of around 3% over the coming year. House price growth in Auckland is likely to be stronger that that, reflecting its relatively tighter market,” he said.

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Over the past few weeks a number of commentators have been suggesting that the Official Cash Rate (OCR) may rise as early as September and most certainly by December this year. The events of the last two weeks have certainly put a stop to any likelihood that rates will rise in the near term. Even before the recent events, we believe it was premature to talk about increasing rates. Our economy is really still in recession despite the official figures. Unemployment is still around 6%, youth unemployment is increasing at alarming rates and retailers are finding it a particularly difficult trading environment. Exporters are suffering with the high exchange rates. There is a strong argument that we should cut our rates further. Our OCR, at 2.5%, is still well above the USA, at a quarter of a percent, the UK at half a percent and the Eurozone at 1.5%. We are lower than Australia at 4.75% but they have a booming mining sector and we do not.

Some recent softening on home loan criteria is good news for buyers

In addition to low interest rates there is some additional good news for home buyers says Mortgage Express CEO Andrew L’Almont.

“Encouragingly, particularly for first-home buyers, lenders are starting to soften their stance on the criteria needed to get a home loan,” he says.

“In fact two of the major banks and a second-tier lender have in recent days announced that they are now prepared to lend up to 95% loan-to-value ratio to first-home buyers and others with good, stable employment and unimpaired credit history.”

“This is an opportunity that has not been available for the last two years,” he says.

Home loan affordability criteria has also been softened according to Mr L’Almont, with house prices being either stable or marginally cheaper than previously and interest rates looking likely to remain low for a while yet based on the Reserve Bank’s Official Cash Rate forecasts.

This suits a marketplace that has seen a considerable shift from homeowners fixing their rates to staying flexible on a floating rate, Mr L’Almonts says.

“People are getting more educated about what’s available to them and not just fixing because the bank said so,” he says, “as evidenced by Reserve Bank data which shows the value of mortgages on floating rates looks set to reach its highest level since the bank’s records began.”

“Despite the availability of attractive two-year fixed rates in September there was $67 billion of mortgage debt on floating rates, compared to $37 billion a year ago – an 81% increase on 12 months ago and a 220% jump since September 2008!”

Mr. L’Almont says he thinks there has never been a better time to buy property.

“With more money in everyone’s pocket courtesy of the tax cuts in October, easing lending criteria and what many are saying is a ‘buyer’s market’ the option of buying real estate as a good long-term investment is looking like an excellent choice right now.”