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Home owners choose to mix home loans

More mortgage holders are choosing to split their home loans into a mix of fixed and floating rates as rates start to rise following the recent official cash rate increase, say banks.

The Reserve Bank increased the official cash rate from 2.5 per cent to 2.75 per cent after years of keeping it a record low rate.

A trend over the past 12 months towards people fixing their mortgage rates had increased in the last month or so, according to Ian Blair, head of retail banking for Westpac.

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Banks relax a little over home loan rules

Latest bank-lending statistics suggest that the Reserve Bank leash on low-equity home loans is finally starting to loosen.

Loan to value ratio (LVR) rules introduced in October meant that banks were not able to allocate more than 10 per cent of new lending to borrowers with less than 20 per cent deposit. High-LVR lending reached a new monthly low in January, at just $147 million compared to $1.19 billion immediately before the rules came into force.

Latest figures for February have shown that the trend has reversed slightly.

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What is the Official Cash Rate?

The Official Cash Rate, introduced in March 1999, is the interest rate set by the Reserve Bank to meet its inflation target, (currently 1 to 3 percent on average over the medium term), with a focus on keeping future average inflation near the 2 percent target mid-point.

The OCR is reviewed eight times a year by the central bank. Monetary Policy Statements are issued with the OCR on four of those occasions but unscheduled adjustments to the OCR may occur at other times in response to unexpected or sudden developments, but to date this has occurred only once, following the 9/11 attacks in 2001.

What does the OCR do?

The OCR influences the price of borrowing money in New Zealand and provides the Reserve Bank with a way of influencing the level of economic activity and inflation.

By international standards, an OCR is a fairly conventional tool and in the past, the Reserve Bank used a variety of tools to influence inflation, including influencing the supply of money and signalling desired monetary conditions to the financial markets. These mechanisms were more indirect and difficult to understand.

How does the OCR work?

Reserve Bank settlement accounts, held by most registered banks, are used to settle obligations with each other at the end of the day.

For example, money from the many hundreds of thousands of Eftpos and cheque transactions made every day is paid by your bank to the bank of the recipient.

The bank pays interest on settlement account balances, and charges interest on overnight borrowing, at rates related to the OCR. These rates are reviewed from time to time, as is the OCR. The most important part of the system is the fact that the Reserve Bank sets no limit on the amount of cash it will borrow or lend at rates related to the OCR.

Visit the Reserve Bank website for more detail.

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Why Use a Mortgage Broker?

What is a mortgage broker anyway?

A Mortgage Broker is someone who acts independently of the banks and other financial institutions. They work with people who want finance (i.e. you) and possible lenders (e.g. the banks) to obtain a mortgage or other loan.

So how does a mortgage broker save you money?

An experienced mortgage broker will get the best home loan deal for you. They are not tied to any particular bank or lending company so they will review all that is being offered and work out which one is the best to achieve your goals – which may include:

  • Getting the best possible interest rates to reduce your repayments
  • Paying off the loan as quickly as possible
  • Using a home loan to finance other purchases
  • Making sure you get enough money for what you want to purchase.

How much does a mortgage broker cost to use?

Usually, nothing. Mortgage brokers earn a commission from the lenders.

Don’t the banks do the same thing as a mortgage broker?

No – a bank may review your financial situation, but will only present options that they have on offer. And this may not be the best offer you can get. They may even turn you down.

How does a mortgage broker save you time?

Applying for finance can be complicated. We know exactly what information a bank will need and make sure you get all that together before the loan application is made.

There is no need to shop around at each bank or financial institution and do all the comparison work, read the fine print or negotiate the deal yourself.

Your broker can also help fill out the necessary paperwork for your loan application.

How does a mortgage broker reduce the stress around getting a mortgage?

You probably have other things to worry about than filling in forms and reading the fine print. It is stressful trying to work out legal jargon, making sure you aren’t missing any important information like interest rate increases, fees and other conditions.

Let an expert do it for you so you can get on with finding that dream home!

Why shouldn’t I just go see my bank and negotiate with them?

Because an experienced mortgage broker has more negotiating power than a single person and is likely to get a better deal. You would also have to spend a lot of time researching all the options like interest rates and fees, from all the different lenders.
You have a lot of other decisions to make like where to buy, what to buy, organising the move, insurance etc and may not have the time or mental energy to get into negotiations with several lenders.

A mortgage broker is on YOUR team and will negotiate for your best interests armed with experience and knowledge.

Can a mortgage broker get me a loan if I’ve already been turned down?

It is possible, yes. Sometimes people get turned down by a bank because of something in their financial history, because they don’t have all the records they need or are self employed. We have helped many people in this situation get a home loan successfully.

How do you choose which mortgage broker ?

Choose a broker with experience under their belt, along with experience in the banking and/or financial industry before they became a broker.

Also, your broker will need to know some quite personal details about your finances. You need someone who you feel comfortable with, communicate well with and who you can trust.

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NZ property market slows

Loan restrictions on the level of low-equity home loans and rising mortgage rates are starting to have an effect on New Zealand’s booming property market according to the Reserve Bank.

The Reserve Bank’s limits on the level of high loan-to-value ratio (LVR) mortgages have influenced annual house price inflation which slowed to 8.8 percent in January from a pace of 9.7 percent in October. Limits on home lending on deposits of less than 20 percent were introduced in October last year.

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Home mortgage rates rise following OCR lift

The Reserve Bank of New Zealand lifted the official cash rate (OCR) for the first time in three years from its record low of 2.5 per cent to 2.75 per cent.

Following the lift, ANZ, ASB and Kiwibank have all announced a rise in their home mortgage rates.

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House prices still rising in spite of loan restrictions

The new loan to value (LVR) restrictions, where a 20 per cent deposit is required from most new residential mortgage lending customers, don’t appear to have done anything to stop prices rising according to ASB economist Daniel Smith.

Mr Smith analysed data from realestate.co.nz, the country’s biggest house sale website, and said listings in Auckland fell four per cent in the five months since the rules came in, compared to the previous five months. That’s despite a surge in listings in October, the first month of the Reserve Bank’s limits.

According to Mr Smith, the restrictions have marginally dented demand but they may also have scared off potential sellers with the low supply keeping the market tight and the prices high, especially in Auckland.

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Interest rate rise may signal the end of Auckland’s housing boom

Interest rate rises expected this week will dampen the demand for housing and could signal the end of Auckland’s housing boom, according to economist, Rodney Dickens.

Auckland house prices have increased almost 30 per cent since the last peak in 2007, but Mr Dickens warns that the rises will not continue indefinitely and there is a risk prices will soon start falling.

Mr Dickens said the Auckland housing market is more prone to booms and busts.

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Fewer house sales in February but listings on the rise

Auckland residential property sales volumes fell in February compared to the same period last year but listings stood at 3,674, the highest since March 2013 and up from 3,371 in January, according to latest property sales figures from Barfoot & Thompson.

“These signs are positive and an indication that the economy is stable, banks are lending, and buyers and sellers remain confident,” said managing director Peter Thompson. “But there is more choice out there and that will ultimately affect prices.”

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Home loan restrictions have changed the lending game

Loan to value (LVR) restrictions on home lending have created unintended consequences for banks, according to KPMG’s annual Financial Institutions Performance Survey report.

The introduction of the 10 per cent new lending limit to borrowers with equity of less than 20 per cent had shifted the action in the market, according to KPMG partner John Kensington.

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