As expected, there has been little activity around home loan interest rates, although we are starting to see some special pricing as banks try to attract home loan business.
KPMG has released its annual banking report, which shows the margin banks make on home loan lending has increased significantly. It is
in the range of 2-2.44 per cent for the majors.
This reflects, among other things a greater portion of their books on variable or very short-term rates, where margins are higher. This will increase, as there is still a significant portion of home loan debt coming off fixed rates within the next 12 months.
Banks have been able to, and still should be able to, absorb any upward fluctuations in wholesale funding costs. Rates have been static for some time and are likely to be that way for a while.
Looking at the overall economic environment, primary produce exporters are achieving excellent prices on the back of a change in lifestyle and eating habits and strong growth in Asia. This will be of permanent benefit to New Zealand Unfortunately, prices are currently being watered down by a New Zealand dollar at high levels against most currencies except Australia's.
We still see some European countries really struggling with their debt levels. It will be interesting to see whether the European Community survives this turmoil, as member countries are positioned so differently.
In the United States, the recovery is moving very slowly and it looks as if inflation worries are off the table for some time, meaning interest rates there should remain low to encourage economic activity.
On Thursday, May 19, we have the 2011 Budget. For New Zealand, it is critical the National Government gets this right. What credit rating agencies and international markets are looking for is a budget that cuts Government spending and also makes material structural changes for the future.
As far as home loan rates are concerned, the place to be still seems to be the variable rate with, it appears, no real upward pressure on the key two and three year rates for several months.
Some people may still wish to introduce an element of certainty, but I feel it is probably a bit early for that decision.
- Brian Berry is a mortgage adviser with Rothbury Financial Services Rotorua
