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Volatility still the name of the game

Offshore banking issues could be positive news for the property market in New Zealand, writes Kris Pedersen.

By: Kris Pedersen

1 April 2023

Another month passes and another month of huge volatility over interest rates. We started March with all the talk being around BNZ’s hushed offer of a 4.99 per cent interest rate for new borrowers. This caused rampant price competition, with other banks competing instead with rates around 5.99 per cent but offering cash contributions.

That frenzy has dissipated since BNZ took their offer off the table early in March and we have noticed better pricing from the New Zealand banks and other challenger banks such as Bank of China.

The Australian banks, who control close to 90 per cent of the mortgage market here, have backed off competing as much.

The other news is related to offshore banking issues where we have seen firstly Silicon Valley Bank and Signature Bank become the second and third largest banks to fail in US history; the Swiss central bank having to give a bailout which was equivalent to close to $90 billion in New Zealand dollars.

MARKETS SPOOKED

This has spooked the financial markets with fears of a 2008 global financial crisis-type crash coming from some quarters, although it needs to be emphasised it is not mortgage lending causing issues this time, with events more connected to the bond market and interest rate hikes.

This puts the US Central Bank in a difficult position because while their primary concern is stamping out inflation, thus needing to raise interest rates, they are wary of giving further oxygen to the chance of a financial meltdown which means they may decide not to increase their cash rate as fast or as high as had previously been expected.

This is actually positive news for the property market in NZ as bank failures tend to have a deflationary effect by knocking confidence and this could mean lower interest rates than had previously been thought.

LAST HIKE?

This can be seen by commentators such as Tony Alexander now suggesting fixed rates have peaked and some suggesting the official cash rate review in April may be the last hike we see. But with inflation still being well above the Reserve Bank target of 2 per cent, and the uncertain times we live in, this prediction could also easily
prove premature.

Real estate sales are at very low volumes, meaning that it is mainly a refinance market which banks can compete on and if the mortgage market stays quiet there may be sporadic specials again as banks look to maintain market share.

With cash contributions being high and property markets tending to be quiet leading into elections there should be some good opportunities for borrowers over the next six months to take advantage when their fixed rates expire.

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