KEY POINTS:
People looking to take out a new home loan or refinance an existing one face some bad news all around at the moment.
New Zealand is meant to be at the top of the interest rate cycle. In fact we were meant to be at the top some
time ago, and the projections have been for cuts to be just around the corner.
While many commentators suggested that the last Reserve Bank official cash rate (OCR) hike was actually the last, that isn't so.
New Zealand's economy continues to be strong, and the prospects are that it will remain strong into the future. The price for this growth is high interest rates.
Today the Reserve Bank is due to make its latest six-weekly interest rate announcement. A survey of economists conducted by goodreturns.co.nz shows that while most of these experts don't expect the OCR to increase, they are flagging that another increase, rather than a decrease is a distinct possibly within the next six months.
Many economists are now saying that OCR cuts are probably around a year away at the earliest.
Adding to borrowers' woes is the lack of price competition in the lending market. Traditionally spring has been the time when the banks either start a rate war or offer sweet deals to customers with extras.
This year is different. The Bank of New Zealand, who for the past couple of years has been the instigator of rate wars, is sitting tight. In its place Government-owned Kiwibank has run some campaigns, but they have been relatively timid, compared to previous battles, and few of the other big lenders have taken the bait and entered the fray.
The only good news recently is that some medium term rates did fall for a brief period. Now they are headed back up again.
When it comes to deciding what term to pick for your home loan there is no easy, or obvious, answer. There is nowhere to hide from all the factors which are pushing rates up.
Floating rates won't fall until the OCR is eased and that looks to be late 2008 at the earliest. At the other end of the scale five year rates, while easing a little recently, are still at historical high levels, so over the full five year term they will probably end up being an expensive option.
There had been some slight falls in medium term rates (two and three years), mainly over concerns in the United States economy. However, the latest market news has negated these falls and rates have retraced to previous levels.
What's the best option at the moment?
The general view is to look for rates in the two and three year market and find the best offer. Then sit back and wait until you have to fix again.
Currently, according to interest rate site goodreturns.co.nz, the big bank standard floating rates are sitting at 10.55 per cent. There is some variation in one year rates with offers of 9.40 per cent and 9.50 per cent in the market. Two-year rates are all at 9.15 per cent, three year rates 8.95 per cent and five years at 8.75 per cent.
In the key two year term there are some lenders, such as Wizard, Bank Direct and BNZ which have rates below, 9.00 per cent.
To check and compare what rates are on offer visit the Mortgage Centre at www.goodreturns.co.nz