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Standing In The Middle Of The Road Is Dangerous. Five Year Fixed Rate 9%

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Contributor:
Brian Dalley
Brian Dalley

Standing in the middle of the road is very dangerous as you could get knocked down by traffic from both sides.

QV figures show property values higher than one year ago - banks start increasing interest rates - housing is set to become less affordable.

Should we stand firm and brace for the impact?

As I am writing I notice two email messages arrive the first from ASB and the second from Westpac both advising they have increased their interest rates. Looking at the five-year rate 8.75% it is now believable when I say I can see 9% on the cards by March. Many thought I was wrong in that predication six months ago and I wish they had been right.

This is what Westpac had to say this morning and I tend to go along with their thinking.  Six-month fixed mortgage rates have now risen – until now this was the only fixed term that had been left unscathed by rate increases. Now that it appears no point on the mortgage curve is ‘safe’, we could see borrowers rush to fix at whatever favourable rates are still on offer. With floating and one-year fixed rates around similar levels, there may not seem to be much advantage in fixing right now, but those who wait until they see the whites of the RBNZ’s eyes before fixing are likely to face much less attractive options. Repaying more than the minimum amount and spreading the loan over a mix of terms can help to reduce overall risk regarding uncertain future interest rate changes - and that is just what we have been advising clients to do.

For example a loan just finalised was set up as follows

$20,000 on a revolving credit facility | $75,000 fixed for 18 months |  $260,000 fixed for 36 months

Don’t use the above structure as a formula to base your decision on as it was a package tailored to suit that clients individual requirements.

A major point of consideration should be the impact any rate change could have on your lifestyle. Do not run your finger down the list and pick the lowest rate. Those days are gone.

Many would still have you believe that the recession is all but over and things are getting back to normal but I tend to think otherwise. Have I become a pessimist over night, not at all. Still an optimist, but things are what they are.

So back to standing in the middle of the road, what should you do?

Simple, move to one side or the other, make a decision. Do the figures and if you can afford to buy now do so and do it sooner than later.

If you are thinking of investing in a rental or two there has never been a better time.

Apparently, so I read somewhere there are 10,000 people on Housing New Zealand’s waiting list and they offer a ten-year rent guarantee.

There are always going to be risks no matter what we chose to do and sometimes it is hard to make decisions when we are not really qualified to do so but remember what  Henry Ford the car maker once said, you don’t have to know everything yourself just surround yourself with people that do.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.  You can read more of his views and opinions on his website www.propertyprofit.co.nz.
 

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