Mortgage rates likely to rise

Despite a prediction that the Official Cash Rate will be lowered again this week it seems that mortgage interest rates are likely to rise due to rising international borrowing costs (swap rates).

NZ Herald: Borrowers to face higher home-loan rates

Home loan borrowers look set to face higher fixed-term mortgage rates despite a predicted cut to the official cash rate this week.

ASB increased the fixed-term rates for its three and five year mortgages on Friday and other banks are expected to follow suit.

On August 15 the five year swap rate was 2.08 per cent while on Monday last week it was 2.42 per cent, he said.

The three-year swap rate had risen from 1.98 per cent to 2.23 per cent over the same time.

Those of us with mortgages have had it good for a while now, with record low interest rates. They are down markedly to about half what they were eight years ago.

But this was unlikely to last. We just have to hope they won’t go up much.

Mortgage fraudster pleads guilty

I often see people complaining that beneficiaries get prosecuted for relatively minor fraud while rich fraudsters get away with major crimes.

These cases don’t seem to have received much attention. Scoop: Fugitive Simon Turnbull pleads guilty to mortgage fraud

Simon Lawrence Wood Turnbull, who fled the country facing mortgage fraud charges, has pleaded guilty to 16 charges under the Crimes Act at Auckland District Court.

Turnbull was involved in a scheme whereby false loan applications were submitted to a funds management company to enable the purchase of 16 properties in and around New Zealand’s largest city between September 2006 and August 2007, the Serious Fraud Office said in a statement.

Property developer Malcolm Mayer was sentenced to six years in prison for his role in the fraud, valued at $47 million, in February 2014. An appeal by Mayer failed in May.

A six year prison sentence is a fairly hefty penalty. As it should be.

Turnbull will reappear for his sentencing on November 18.

“Mortgage fraud is taken seriously by the SFO. In a housing market which has enough challenges for the honest buyer, further costs to borrowing because of other people’s dishonesty is not acceptable. The SFO welcomes the guilty plea today,” SFO director Julie Read said.

All types of fraud should be taken seriously – as should successful convictions for financial/business crimes.

Unaffordable houses

While Government and opposition parties try to claim they have the  solutions for ‘affordable housing’ the numbers simply don’t stack up for a lot of people, especially those who want to buy their first house.

Neil Binnie, manager of the Bays Community Housing Trust, does some calculating to point out what should be obvious.

NZH: MPs’ notions of ‘affordable’ insult to poorer home-hunters

… the issue of affordable housing is not well explained.

Kiwis in upper wage brackets can always afford the high prices especially when they are buying and selling on the same market. It is the first home buyers and those with lower wages who are in trouble.

“Affordable housing” is a phrase that has been used in the media in different ways. A common definition is that a house is said to be affordable if its asking price is 75 per cent of the median selling price of houses in the area.

In a few months the median house price in Auckland will be a million dollars. Does that mean that a house costing $750,000 dollars is suddenly “affordable”? Likewise we are told 20 per cent of houses at Hobsonville are “affordable”.

Binnie’s number crunching:

  • Statistics NZ gives the median family income in Auckland for 2015 as $1575 a week.
  • Using the IRD tax calculator and taking 3 per cent for KiwiSaver leaves $1183 take-home pay.
  • Taking 40 per cent of this gives $473 a week to pay the mortgage (or rent).
  • If interest on the mortgage is 5 per cent this will sustain a mortgage of $350,000.
  • With a 20 per cent deposit, a house costing $440,000 is therefore affordable under this definition.

(Prudence suggests you should be prepared for an increase in mortgage rates to 7 per cent, meaning you should only spend $360,000 on a house.)

When National came to power mortgage interest rates were over 10%.

This is consistent with the analysis by Simon Collins, “Affordable houses a Dream” in the Herald on July 12. He stated that only 46 per cent of people aged 20 to 65 are able to afford a house priced at $500,000. Incidentally I am wondering how these families save the $100,000 deposit while paying an unaffordable (median) rent of over $500 a week.

But…

When Labour promises 10,000 “affordable homes” a year costing $500,000 to $600,000, the discussion above shows they are not affordable to more than half of the population. In fact Labour have shut out exactly the families they are claiming to help.

And in the main those who don’t yet own a house will be the ones who are shut out.

There are properties for sale in Auckland with prices less than $440,000. The vast majority of these are one-bedroom apartments with body corporate fees of at least $50 a week which will blow the budget. These one-bedroom units are inappropriate for young families.

Half of Auckland’s families have less income than this, so they have no hope of ever buying their own home. This is the reality for a family on the median wage or less.

There is one obvious solution to families wanting to buy their first home – start somewhere other than Auckland (or Queenstown or Hamilton or Tauranga). Once you have a house you can grow your equity (with the help of inflation) and then some time in the future you may be able to upgrade to a big city

There are still a sizeable proportion of houses in Dunedin selling for between $200-$300 thousand (some are less).

The problem is a limited supply of jobs in the regions. In part this is due to Governments over the last thirty years gutting regions of Government departments and jobs, choosing to concentrate them in a few large cities. There is no sign of that changing.

But for many people if the want an affordable house they can’t rely on the Government, nor the opposition.

Perhaps they have to choose an affordable town or city for themselves.

Confidence rising, costs falling

A number of business and economic indicators are positive, immigration and tourism are at record highs while mortgage rates are at record lows and oil prices continue to fall (Brent crude at 11 year low).

ODT reports in Full of confidence:

At a glance

• Westpac McDermott Miller December consumer confidence: 110.7 points, up 4.7 points on September

• ANZ Business Outlook – business confidence rises to an eight-month high

• ANZ Job Ad Series has risen for the third consecutive month, first time since early 2014

• Strong retail sales expected, but warnings about getting into debt issued

• Gross domestic product (economic) growth in the third quarter outperformed the first and second quarters put together.

McDermott Miller director John McDougall said the December result in the consumer confidence survey was still 4.2 points below the level prevailing last Christmas but marked the largest quarterly increase since December 2013.

The lift was largely driven by a return to positive sentiment about the short-term prospects for the New Zealand economy with a net 7.7% expecting good times over the coming year – a sharp contrast with the net 15% expecting bad times in September.

Among those consumers expecting good economic times over the next year, the most commonly cited reason was a belief in “effective government economic policy”.

Only 10% credited better export prospects.

Among those expecting bad economic times, the most common reason was “wrong government economic government policies” followed by low dairy prices, he said.

So economic indicators and confidence are looking positive.

Tourism and immigration are both at record highs.

NZ in demand as destination

New Zealand remains an attractive destination to move to permanently or visit, with both November’s monthly migration and tourism numbers reaching record highs.

Statistics New Zealand figures show net migration inflows remain at an extremely high level with no signs of moderating.

ASB chief economist Chris Tennent-Brown said strong net migration inflows were helping support robust levels of consumption but were also adding workers to the labour market and helping keep a lid on inflation.

Seasonally-adjusted visitor numbers were also at a record level and that was boosting service exports.

“We expect visitor arrivals growth to remain firm over 2016, with the lower New Zealand dollar boosting spending.”

Also helping many people (in business and with mortgages) are record low interest rates.

Record-low rates; bank margins fall

The competitive lending environment of the first half of the year intensified in the three months ended September as banks offered record-low interest rates to attract customers.

And oil prices (and petrol prices) keep going down.

Brent oil hits 11-year low

Brent oil cratered to its lowest price in more than 11 years, as demand for heating oil slumped on warmer-than-normal temperatures and traders tested for a bottom.

Brent futures were down 53 cents at $36.35, falling as much as 2 percent during the session to a low of $36.04, their weakest since July 2004.

Brent has dropped nearly 19 percent this month, its steepest fall since the collapse of failed US bank Lehman Brothers in October 2008.

US crude remained above its 2009 low and settled up a penny a barrel as traders squared positions ahead of the January contract’s expiration. The February contract declined and analysts expect stockpiles to build again this week, signaling further oversupply in already glutted market.

So business confidence and spending are up, while significant personal and business costs are down.

These things are reported in passing by the media but seem to get far less attention than trivial things.

OCR down, mortgage rates down

The Official Cash Rate was dropped to 2.5% yesterday to the lowest rate ever, down from 2.75%. It is thought that this will be as low as it goes.

Mortgage rates also dropped again. Kiwibank has the best floating rate, reported to be 5.65% (their website still shows it at 5.99%).

Westpac currently offers the best fixed term rate special, 4.24%  for 2 years.

NZ Herald reports: Now’s the time to fix your home-loan rate, says expert

Homeowners are being urged to fix their mortgages now to make the most of record-low interest rates – which experts say are at rock bottom.

BNZ director of retail and marketing Craig Herbison said homeowners stood to miss out on years of savings if they didn’t take advantage of the lower rates, which had likely reached their plateau.

Loan Market mortgage adviser Bruce Patten said further cuts to the cash rate were unlikely and now was the time to fix.

“The message from the Reserve Bank was, ‘Don’t expect a cut next year’. Our advice to people in the last few weeks has been, ‘If you want certainty, now is the right time to fix’.”

Rates are close to half what they were a few years ago.

Homeowners should be looking to fix their mortgages for two or three years, he said. Rates for those terms were between 4.2 and 4.5 per cent a year – a big saving for people who might have fixed for one year 12 months ago, when one-year rates were around 6 per cent.

A homeowner with a $400,000 mortgage taken over 30 years could potentially save $372 a month, or $4464 a year, by fixing at 4.5 per cent, compared to 6 per cent.

So a $200,000 mortgage over 30 years could save abour $180 per month, about $2200 per year.

This will help many homeowners, but will also benefit people in business.

Presumably some dairy farm owners will be getting mortgage payment relief from lowering interest rates that will in part at least offset the low dairy prices.