25 Jul 2008

Home loan rates moving down

5:28 pm on 25 July 2008

The ASB is the first lender to drop mortgage rates following the Reserve Bank's decision on Thursday to cut the Official Cash Rate to 8%.

The bank has lowered its two-year fixed lending rate by a quarter of a percentage point to 8.95%.

In May, the ASB was the first major bank to cut key mortgage rates in the wake of the global credit crunch.

Southland Building Society and the TSB expect to reduce their mortgage rates within the next two weeks, while Kiwibank says it lowered its rates earlier in anticipation of the Reserve Bank's move.

Real Estate Institute president Murray Cleland says unless larger cuts are made to interest rates, the residential property market will remain depressed.

Mr Cleland says he cannot see any major change for property owners in the next three to four months without additional substantial cuts.

He says homeowners should expect further easing in house prices and will have to negotiate to get the sale they are after.

Economy slows

The Reserve Bank's cut in the Official Cash Rate was the first in five years.

Governor Allan Bollard said on Thursday that "there is a risk that the domestic economy will slow further" over the rest of the year.

The central bank said significant pay rises would be unlikely, despite the rising cost of living and is predicting 5% inflation by September.

But the Council of Trade Unions says businesses are doing well enough to sustain 3% and 4% pay rises across the board.

'Little relief' for exporters

Business New Zealand says the decision to lower the Official Cash Rate will provide little relief for exporters.

Spokesperson John Pask says the New Zealand dollar has fallen slightly on the back of the drop in the cash rate. But he says any increased returns for exporters may be of little comfort.

Mr Pask says the Reserve Bank's decision is likely to push up the cost of oil and other imports, cutting into exporters' bottom lines. He says that is especially true for exporters who have to buy in materials from overseas.

The Importers Institute says the interest rate cut will make it tougher for consumers to stretch their income this Christmas, as it will push up the price of imported items.

The institute is predicting a greater fall in the New Zealand dollar in the next two weeks. Its secretary, Daniel Silva, says that will push up costs for importers currently ordering Christmas stock and increases of more than 10% could be passed to consumers.

Reserve Bank Governor Alan Bollard says rates could be cut further if inflation pressures continue to fall and there is not a rapid decline in the New Zealand dollar.