Interest Rate Outlook
Activity in the property market continues to show positive signs of improvement, particularly in Auckland and Christchurch. However, mixed signals continue to permeate across the market with client debt serviceability and a net migration outflow keeping at bay the growth being driven from a supply-demand imbalance, net-on-net, look for small continued growth.
Low interest rates remain a key stimulating factor, though consumers are still moving cautiously with many still focussing on reducing their debt while rates are low. There is aggressive competition amongst the banks for business which sees us often able to negotiate substantial interest rate discounts for our clients.
The New Zealand economy remains caught between positive factors such as low interest rates and pending earthquake rebuild versus headwinds from a volatile and worrying global scene; and a weak national balance sheet this picture is providing mixed economic signals. Meanwhile the as the unemployment rate continues to drift down over the coming year, a slowly improving and evolving labour market will keep households focused on rebuilding their savings buffer.
Fixed mortgage rates edged lower in the month, with floating rates at levels not seen for 50 years. The 1 year rate is still the cheapest, and all fixed rates out to 3 years remain at or below the floating rate. Given these considerations, we do see merit in fixing; anywhere from 1 – 3 years have merit. That said, any decision to fix should not be made lightly – not only does such a choice need to take into account one’s individual circumstances, it must also be acknowledged that uncertainty is at an extreme.