Mortgages Rates are tumbling

In the past two weeks, the interest rates have taken a tumble. The potential for sub-five percent interest rates is on the horizon and rests upon the decision of the Reserve Bank cutting the Official Cash Rate – amid the depreciating dollar playing on their minds.

Depending on your import/export standpoint, interest rates and a retracting dollar can be a disastrous mix, but for the general public and home owners, the falling interest rates and sinking petrol prices are leaving potentially more dollars in the pocket of the first time investor (and those long term investors), making the idea of becoming a landlord more inviting.

While there is some trepidation in Auckland that cooling interest rates and the ease of financing available could potentially push house prices further out of reach for those at the bottom of the property ladder[1], it surely must be good news for those outside this metropolitan area.

Some pundits believe that the pattern for sub-five percent rates is long overdue, with New Zealand having the highest rates in the developed world[2]. With a potential rates war between banks being bandied about, a number of banks have already begun slashing rates and offering sweeteners to potential mortgage holders.

Over the past five years, the market has seen a significant drop in interest rates, and in the foreseeable short term future it seems that this may continue the trend.

There is a word of warning to potential new investors here. It is important to ensure that there is the ability to meet future repayment thresholds, as at some point, the rates will turn and ascend. The benefit of having tenants in your new investment property is that they will help meet mortgage repayments into the future, minimizing the weekly, fortnightly or monthly need to front with the whole mortgage repayment.

Seek professional advice

It is important to speak to the professionals around the prospective purchase of an investment property.

It is vital to discuss the implications of a mortgage payment schedule for short term and long term viability (in terms of meeting repayments) with your bank manager. With their advice and calculations, you should have a clear idea on your payment values moving forward, and an understanding of the implications should the rates begin to increase down the line. With the desired rental value, you’ll also be able to determine the exact investment that you will need to top up (on the top of the rental fee) to meet the repayment value (mortgage repayment).

What is the best deal?

There a three options to consider when looking for the best interest rate.

The first is utilizing the skills and experience of a Mortgage Broker. Let someone else do all the hard work and negotiation for you. The broker is paid by the successful bank – it does not cost you anything up front for the services of the Mortgage Broker. You’ll sit down with the broker and work through what you can pay for a property, the deposit you have available, how much you can repay, and identify anything of importance that may impact upon repayment of the mortgage in the future. With these points in mind, the broker will then compare the different offers of the banks and recommend some potential options. The final decision is at your sole discretion, but they can guide you through the different options available.  Don’t forget we have an in-house mortgage broker, Simon Maule.  If you are interested in talking with him let one of our team know.

The second option you may like to pursue is that of negotiating with your current bank. Armed with other banks offers, and if you have been with your bank for a long period of time, it may pay to go back to the bank and request they look at offering a better rate, otherwise they are about to lose business! If another bank is offering a significantly better rate, you may be able to leverage this for a reduced rate at your own bank. Banks do not want to lose valued customers (well not normally), so the possibility of matching or bettering an offer is a real possibility – but there may be some strings attached, such as bringing your outstanding credit card over to the bank if you currently don’t have it with them.

The third option is research. If you prefer to be the one in control, take the time to review the different rates offered by the multiple banks and look in depth at some of the fine details and requirements to secure the loan. Deposit values (i.e. 20%) and requirements for a valuation to be undertaken etc. may be some of the additional hoops you need to jump through. In addition, some banks also offer ‘sweeteners’ to make their offers more appealing. For example, the TSB Bank is currently offering a rate of 5.5% Fixed for two years and is throwing in an iphone 6 and up to $1,000 cash.

There are some useful tools that can help make this task easier. Websites such as interest.co.nz provide the ability to compare current offerings (just interest rates in this case) of the major banks relatively easy.

Conclusion

With the opportunities of a lower interest rate, and steady purchase prices in Christchurch, now is the time to access the property ladder, as a potential investment as part of a portfolio and landlord, or just as a new home for the family.

If being a landlord isn’t appealing, take the risk out of your investment and place it in the hands of Christchurch’s leading Property Management team at McPherson Property Management. All you’ll have to do is sit back and reap the benefits while the day to day management of the property is undertaken by the team.

The question still remaining around the interest rates is how low will they go? What are your thoughts? Note them in a comment below.