To fix or float? That is the question

Is it best to stay floating with your home loan or move to a fixed rate? Tower's Sam Stubbs gives his advice.

Tuesday, April 12th 2011, 7:10AM 3 Comments

by Benn Bathgate

Now is the time to fix your mortgage rate, as inflation increasingly makes its presence felt, according to Tower Investments CEO Sam Stubbs.

"We made a big call on mortgage rates here. Fix mortgage rates in the long term because inflation is coming," he said.

Speaking at the company's quarterly media briefing Stubbs said, "We actually think for mortgage holders now people should be taking fixed term rate mortgages because ultimately if interest rates go up, as expensive as they look right now and as attractive as floating rates look now, the severity of these rate rises and the speed with which they would come on would potentially make five-year plus fixed mortgage rates look quite attractive right now."

He said Tower believed that while governments and central banks had kept interest rates low to promote growth and jobs, debt pressures would soon have to be tackled by rising inflation.

"We think the majority of the western nations are going to chose to inflate their way out of debt problems, and that's going to be bad news for fixed interest investors and very good news for people who own houses with mortgages."

"Inflation is the homeowner's best long term friend," he said.

Also in what is potentially good news for Auckland landlords Stubbs highlighted the fact that new home building work is falling short of the city's population growth.

"Auckland's population grows by a net 16,000 every year just from immigration, regardless of the natural growth from population, 16,000 immigrants in Auckland, that's 80% of immigrants in New Zealand. That means you have to have new dwellings to house these people and the actual supply of housing in Auckland is tight, because we see it in the rental market, there's not a lot of evidence of a lot of building going on," Stubbs said.

"Look around you, where are the cranes? They're not there."

Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz

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Comments from our readers

On 12 April 2011 at 8:42 am dave said:

Your introducing comment says floating rates are priced well below fixed rates is a little misleading - the banks are prepared to negotiate and some fixed rates (6 mths at least) can be negotiated under the floating rate advertised by some banks - the rates vary from bank to bank

On 12 April 2011 at 10:53 am Simon said:

Floating your home loan at present represents the best of both worlds for most borrowers – low fortnightly repayments and the “flexibility” to fix quickly when interest rates do start to move upwards. No doubt the rate chasers out there are already falling into the banks own trap of fixing for 18 months or less enticed by the specials on offer. Savvy borrowers will look at the long term scenario and realise it makes sense to pay a bit more now to have certainty with your repayments for a couple of years by fixing longer.

On 15 April 2011 at 11:27 pm Barry said:

Don't be fooled. Tread carefully before fixing. Anthony Robbins little saying "the past does not equal the future" may well prove correct in this case. Banks will compete. If we all stay floating we'll win.