Views differ on when rates will fall

Weekly home loan report: The fixed mortgage rate cuts slowed over the past week as market watchers mulled the implications of the Reserve Bank trying to quash expectations for the easing cycle to begin this year.

Tuesday, March 14th 2006, 6:00AM

by Janine Ogier

The RBNZ left the official cash rate at 7.25% on Thursday, as expected. It said there would be no more tightening, but it did not expect to be in a position to ease policy in 2006, which is contrary to pricing in the debt market.

Governor Alan Bollard commented that the housing market was starting to cool, but warned against complacency.

“We need to see this market continue to slow, so that consumption moderates and helps to reduce inflation pressures,” he says.

Whether the competition among lenders to lower fixed rates will bolster the housing market and stymie Bollard’s hopes, or just readjust market share as borrowers re-fix when their mortgages come up for renewal in coming months, remains to be seen.

Longer-term rates seem attractive to borrowers wanting some certainty and those reluctant to wait out economic developments impacting on the variable rate.

Deutsche Bank chief economist Darren Gibbs believes there’ll be 150 basis points of easing from September to late April 2007, taking the floating rate to around 8% from current major bank levels at 9.55%.

ANZ economists forecast 75 basis points of easing from September to December.

"Clearly, the Reserve Bank remains wary of inflation pressure simmering within the economy and does not wish to re-ignite the housing market by letting one- and two-year swap rates fall as the interest rate market pre-empts the easing cycle,” the ANZ team says.

ASB chief economist Anthony Byett, who believes the first rate cut will come in early 2007, says the RBNZ’s view about timing could change quickly should further evidence of slowing housing and labour markets emerge.

The five-year part of the mortgage market was the most active for the week, with eight rate decreases reported.

The five-year range is now between 7.45% from NZ Home Loans and Sovereign and Gem Home Loans’ 8.40%.

Variable rates start at 8.50% from Napier Building Society and spread to 9.95% at NZ Mortgage Income Trust.

One-year rates are between 7.60% at Southern Cross to 9.05% from GEM Home Loans.

Two-year terms range from 7.75% at Southern Cross to Headstart’s 9.25%, while three-years vary between 7.5% from Kiwibank and Mortgage Finance to Headstart’s 9.15%.

For four years, Pacific Prime and Superbank offer 7.8% and the lenders spread up to NZ Mortgage Funds’ 8.11%.

« Reserve Bank leaves OCR unchanged and rules out any easing this year

Superbank grows mortgages, deposits and pares losses »

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