Right on time to give the real estate market a boost following the October 1 rule changes is an interest rate that's so low it has not been seen in New Zealand for at least 50 years. It's bound to start a little loan-rate battle, which will be great for home buyers.
SBS Bank sent a ripple through the loan market this week when announcing a fixed-rate deal of 3.99 per cent for one year.
This will surely put pressure on the High Street banks to either match or better the deal in the coming weeks -- perhaps we'll see 3.99 per cent for 18 months from one of them.
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While the rate from SBS will help it increase market share, it is only available to new borrowers wanting $100,000 or more for a residential property.
The bank is also likely getting in ahead of the widely expected Reserve Bank decision to cut the official cash rate (OCR) from 2.75 per cent to 2.5 per cent on December 10. At the very least this should -- if the banks play nice -- see floating rates drop to well below 6 per cent.
And there is some level of confidence that, come the New Year, the OCR will -- unless inflation makes a surprise spike -- end up at 2 per cent (perhaps by June).
Banks, of course, have been able to borrow cash from off shore at less than 2 per cent for some time, but still charge 6 per cent or more for floating rate mortgages (the country's big four banks made more than $3.5 billion in the last year; its profits were up more than 9 per cent on 2011/2012).
Sellers will have noticed the worm has turned. It's now a buyers' market and those sticking with inflated asking prices will likely find it hard going finding a buyer until investors (foreign and domestic) re-enter the market.
What the real estate market is experiencing now is a soft spot. And while buyers are in a much stronger position to negotiate on price, it doesn't mean there will be any fire sale bargains. We are just back to what I'd call fair market prices.