Time To Fix Mortgages?

There have been numerous grumbles that house prices in some regions ( particularly in Auckland and Christchurch) are rising too quickly for the common good.

The debate on whether interfering in the market is good or not can be argued another day. In the meantime what should home owners and investors do to protect themselves.

The most obvious one is to fix the rates you may have now for as long as is practicable. If that’s too expensive than fix a portion of any mortgage and leave the rest floating.

I have been saying for some time that the end of the low interest rate cycle is slowly  coming to an end  so it cannot come as a surprise if some action is taken.

The Reserve Bank  raising interest rates doesn’t make a lot of sense as that would push up the NZ dollar even further and hurt exporters even more.  Lowering LVR’s ( loan to value ratios) would work but that would hit first home buyers and the poor, Indeed it would likely push up rents as those hoping to buy are locked further out of the market.

There could be a regime introduced that has interest rates for home owners set at a lower level than for investors but that could be open to abuse and still hit renters in the pocket.

Restricting how much cash a bank can lend on housing out of their total funds is a likely contender.  However that could spawn a whole new breed of second tier lenders to fill the gap with high interest loans as we have seen with the recent finance company fiasco.

Any interest rise would have to be moderate maybe one quarter to one half percent so a quick calculation would show that most home owners and investors would hardly notice the difference.

The main effect of any interest rate rise would be the “shock” effect which would, in my opinion only last a short time.

The problems in the housing market are caused by shortages of new stock and rapidly rising costs which no amount of financial tinkering will fix.

Also bear in mind that house prices are flat and even falling in many areas so how the RB will address that will be an interesting exercise indeed.

Warning on housing
By Brian Fallow
Tuesday Apr 9, 2013

Rising prices are stoking fears at Reserve Bank of boom followed by destructive bust.

Annual growth in housing credit is just over 4 per cent, compared with just over 1 per cent a year ago. Photo / Chris Gorman
Climbing house prices and a growing proportion of lending at high loan-to-value ratios are stoking fears at the Reserve Bank of a boom that this time will be followed by a destructive bust.

Deputy governor Grant Spencer warned yesterday, in a speech to the Employers and Manufacturers Association in Auckland, that the bank’s flat outlook for interest rates would need to be revisited if rising house prices and the associated expansion of credit began to spill over into excessive consumer spending and inflationary pressure, as they did during the mid-2000s boom.

Mortgage rates on offer are the lowest since the 1960s and have dropped half a percentage point over the past year, even with the official cash rate on hold, as banks accessed lower funding costs on international markets.

Read the rest here:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10876259

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