This update: 10 September 2009
 
If your current home loan fixed interest rate period is up for renewal soon, knowing what’s going on with interest rates may help you make an informed decision.

What’s happening in the market?

Short term interest rates are affected by the Official Cash Rate (OCR), which is set every six weeks by the Governor of the Reserve Bank. The Governor sets this rate in an attempt to manage inflation and the decision is based on what’s happening in the economy, housing activity and consumer prices. The OCR is one of many indicators, including overseas interest rates and wider economic developments, that affect short term interest rates such as floating rates and one and two year fixed lending rates.

At the latest review on 10 September 2009, the Reserve Bank once again kept the Official Cash Rate (OCR) unchanged at 2.5%.

The Reserve Bank also repeated their view that they expected to keep the OCR “at or below the current level through until the latter part of 2010.”

Evidence of a ‘patchy’ recovery in the economy is emerging, driven by a better growth outlook for our trading partners and increased domestic demand following a rise in net immigration and a pick-up in the housing market.  However the Reserve Bank said the recovery remains fragile and keeping the OCR at current levels would help to support economic growth.
 
Depending on developments in the economy and the sustainability of the recovery, the Reserve Bank also said there is still potential for further small cuts in the OCR.

What does this mean for you?

In the current environment, with longer-term fixed rates reflecting a risk premium and the Reserve Bank reiterating their intention to keep the OCR at current levels for an extended period, our economists continue to favour a succession of shorter-term interest rates.
 
The concept of ‘break-even’ remains a useful one in this environment to help borrowers understand what their average cost of borrowing may be with a succession of short-term rates, as opposed to locking in a longer-term rate.  You can read more about this in our Property Focus publication.

Of course, this will depend on future movements in interest rates. The option that is best for you will also depend on a range of other factors including your attitude to risk, your available free cash-flow, and desire for certainty over flexibility.

To find out more about the housing market, read our latest Economics’ ‘Property focus’ update.

Our lending criteria, terms, conditions and fees apply to all loans.  This material is provided as a complimentary service of The National Bank of New Zealand (part of ANZ National Bank Limited) (‘Bank’).  It is prepared based on information and sources the Bank believes to be reliable.  Its content is for information only, is subject to change and is no substitute for commercial judgement or professional advice, which should be sought prior to entering into any transactions.  To the extent permitted by law the Bank disclaims liability or responsibility to any person for any direct or indirect loss or damage that may result from any act or omission by any person in relation to the material.