Interest rates could fall below 5% - so be patient

Media release

Thursday, 29 January 2015

Statement by James Kellow – Director of New Zealand Mortgages & Securities

Interest rates could fall below 5% - so be patient says financier

Auckland property financier James Kellow says prospective homeowners should be patient with arranging a mortgage, as he believes interest rates will fall in 2015 possibly below five percent for some. His comments follow the Reserve Bank today holding the Official Cash Rate at 3.5% and many now forecasting a cut in the ORC this year.

“Whilst not completely comparable, we’re seeing many fixed rates in Australia now below five percent and over here we may see that happen as well. One factor is that falling dairy prices are having a negative impact in our provincial engine rooms such as the Waikato and Southland, not to mention the very low, almost zero, rate of inflation,” says Mr Kellow, director of New Zealand Mortgages & Securities.

“What’s more our retail banks will be keen to maximise their market share and home loan volumes and so will they will follow the wholesale funding market with interest rate cuts as sure as night follows day.”

Mr Kellow says lower wholesale funding costs and strong consumer demand will make it easier for banks to cut back their fixed mortgage rates.

“Given the ongoing rise in property valuations mostly in Auckland, there’s a strong belief among many that there’s no better time than now to buy and with rising rents, investors are also eying up greater yields. However prospective homeowners and investors should still be patient, because locking in a cheaper mortgage rate is often better on the back-pocket longer term than trying to negotiate a slightly lower house price.”

Mr Kellow says while January and February are the traditional months when the home loan market sparks up as does competition between the banks over interest rates, he believes the Official Cash Rate will probably be cut in 2015 and so wannabe homeowners should not be disappointed if they’re still in the marketplace come autumn and winter as interest rates may be even lower then and more attractions may also be up for offer.

“As well as dropping fixed rates, banks will also be very getting competitive when it comes to offering cash incentives, Airpoints, Flybuys, paying legal fees, you name it.”

He says despite interest rates rising through 2013 after a 50-year-old low, some could see by late last year what was happening. However unfortunately many of those taking out mortgages were spun a largely negative outlook for 2015 when it came to the direction of interest rates.

“Some of us in the property finance sector have been saying for months that interest rates would start falling this year. However unfortunately for many of those borrowing and fixing rates last year, they were fed the line of fix now for two or three years as interest rates may be eight percent in 2015. Advice like that is probably a good reason why people should always entertain putting at least part of their mortgage on variable,” says Mr Kellow.

ABOUT NZMS: New Zealand Mortgages & Securities (NZMS) is a joint venture between Mansons TCLM and Mr Kellow, a Specialist Property Financier. Mansons TCLM, helmed by Ted Manson ONZM, is one of New Zealand’s most successful and long standing developers whose business has built more Green Star rated commercial buildings than anyone else in the country. The privately owned NZMS mortgage business is actively providing development, bridging and mezzanine finance to property developers throughout Auckland and is capable of supporting the largest transactions in the region.

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