Shorter-term rates are heavily influenced by New Zealand's Official Cash Rate and opinions about its future direction and there has been a hardening of views among economists that the OCR will stay high until well into 2008, if not 2009. Signals about longer term rates, more heavily influenced by overseas rather than domestic borrowing trends, remain mixed; US rates have fallen sharply but it is still not clear whether the worst is over for the US credit crisis. In the UK there have been predictions that subprime borrowers – those with adverse credit histories – will face big increases in mortgage costs when they next need to refinance their loans.
For New Zealand borrowers, there is an emerging view that those who opt for floating or one-year terms in the hope that longer term rates will be much cheaper in a year's time may be disappointed.
One of the unknown factors is whether there will be a spring mortgage war between lenders here. With rates from all the major banks identical across all terms, the big lenders look to be determined to try to avoid another damaging price war. However, ANZ, National Bank and ASB have all reduced commission to mortgage brokers this week; whether the banks use the savings to fund price cuts, remains to be seen.
Non bank lender Sovereign, past of the ASB group, is moving in the opposite direction. It has postponed a decision on broker commissions but in the mean time has reduced some discounts. These include a reduction in the discount for larger loans from 0.15% to 0.10% for new business. For existing clients, the discount will be reduced when the borrower's current rate discount expires. The threshold for high value discounts rises from $200,000 to $275,000 for new business. Existing clients who have qualified for high value discounts will remain eligible. New advances for open-ended bridging advances will have an additional margin of 1% and a high value discount will not apply on the bridging portion during the bridging period.