Wholesale Money For Property Investors

Posted on Thursday, June 27 2013

 Would NZ Interest Rate Go Up?

 

There has been much in the news lately regarding interest rates & bank lending criteria, it can be understood why many who do not follow the markets simply run with the herd or do what their bank manager instructs them to do. Westpac will soon to follow in ASBs lead by increasing interest rates citing wholesale rates “increasing significantly over the last four weeks” It almost seems imminent that our other major lenders will shortly follow suit. Some get caught up in the media hype of increasing rates, OCR announcements & housing affordability, many will overlook other primary factors like swap rates which largely drive New Zealand fixed term rates. An interest rate swap in layman’s term is essentially where two parties agree to exchange two interest rates of different types for a particular period of time from anywhere between 1 to 10 years with 3 to 5 year swaps being the most common. These are influenced by issuers of NZ$ bonds, corporate borrowers & lenders matching fixed rate mortgages against their borrowed floating rate. In essence, our banks cost of funding fixed term rates.

Would New Zealand Interest Rate Go Up?

So what does this mean for me you might ask? Wholesale cost of funds have been increasing so, it is little surprise to consequently see an upwards movement of fixed rates. Really what you should be assessing is what impact this may have on your portfolio? For those of you with larger portfolios that have been purely fixed on shorter terms you need to think about what strategies you will set in place to offset any rate movements. The Reserve Banks proposed requirement of banks to hold more capital may in fact stabilise increases in the immediate future however many who have over leveraged several properties on a higher loan to value ratio need to understand their access to funding is drying up & they should be thinking about debt reduction measures. An unnerving trend we have seen over the last year or so is the influx of young investors into the market who have a lack of foresight to plan for raising interest rates, a quality question to ask yourself is how will my portfolio stack up if interest rates rose to 8-9%? I’m not saying that this will happen anytime soon, however the reality is that it’s in your best interest as an investor to understand how external circumstances can affect your investments.

Hopefully you took advantage of ongoing “mortgage wars” over the last 12 months. These have seen great opportunities to fix in record breaking low rates, however many of you will be inching towards coming off your short term interest rates shortly . Now is the time to think about how this will affect your cash flow & what steps you’ll take to stabilise this for your future.

Don’t become a victim of short term mentality, don’t fail to plan. If you’re not in touch with the financial markets or haven’t recently assessed your lending structures with your Advisor I recommend that you do so, soon. Taking the time now while markets are shifting will save you from making reactive decisions once the market has shifted.

 

Matt Thorburn| CT Financial Design Ltd.

www.FinancialDesign.co.nz

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Expert's Bio

Matt Thorburn

CT Financial Design is a boutique Brokerage specialising in mortgage solutions for Investors. Founded by successful investors & borne out of a passion for funding property investment, we focus on working with a smaller group of clientele, ensuring you receive personally tailored advice every time without compromise in expertise or professionalism.

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