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Lower Rates – LVR Next?

We are seeing historically low rates, and there’s a possibility of loan-to-value ratio (LVR) restrictions being relaxed soon, writes Ryan Smuts.

By: Ryan Smuts

1 November 2019

It has been another month of rate competition with arguably the most attention going to Kiwisaver provider Simplicity’s entry into the mortgage industry with a market leading 2.95% rate. What was of particular interest was that unlike other leading rates, which were fixed, Simplicity has an offer which is based on a floating rate.

With an initial plan of $50 million to be lent over the first six months, it remains to be seen if this will expand outside of being a clever marketing ploy as this amount won’t even register – considering the actual size of the New Zealand mortgage market. Outside of this we have seen most other banks interest rate offerings continue to trend downwards with SBS coming to the party at the time of writing with a competitive two-year rate of 3.39% and also offering a cash back incentive at the same time.

This point is worth noting, as it is not just the rate that borrowers should be looking at when considering pricing, although in many cases a cheaper rate will be better over time than an initial cash injection up front.

LVR Restrictions Next?

Overall, when looking at the Australian backed banks and the New Zealand banks, there isn’t much in it and so other factors such as facility types and the ability to structure mortgages in particular ways should be taken into consideration.

Some lenders are also looking to price investment margins on top of quoted rates for property investment loans, although at present this appears to be able to be negotiated in many cases.

The Chinese banks again are leading the way with Bank of China, ICBC and China Construction Bank’s fixed rates only have a few basis points between them. On another note: it will be interesting to see what eventuates out of both the next Official Cash Rate (OCR) review (on November 13) and also two weeks later (on November 27) when the Reserve Bank releases its half-yearly Financial Stability Report.

The key point to watch out for will be if the Reserve Bank looks to relax the current LVR restrictions further as they have done in the last two years through the same report. There is a chance they may decide to hold off making a further OCR decrease until next year – if their intention is to relax it (with the concern being that both lower deposit criteria and even lower interest rate availability may result in the property market being stimulated more than they are comfortable with).

However, on the flipside the probability is that with continued low business confidence and overall growth, they will look to reduce a further 0.25% in the November review. This means we may see even lower rates going into the Christmas season.

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