Amber Haddock "Kiwis pay extra high mortgages over 'risk'"

http://www.stuff.co.nz/dominion-post/news/9859273/Kiwis-pay-extra-high-mortgages-over-risk

Blog 5

Posted by the Dominion Post, the article relates to one of my previous posts in how the OCR* (Helm) increase has a prolonging effect on the property market, its a proven fact that kiwi home buyers pay more for their mortgages than the rest of the world says Fensome (Fensome). As stated in a previous post from another article the increase in the OCR of 2.75% has had an effect on mortgage interest rates seeing them increase (Fensome).

Australian interest rates are seen to be greatly lower than NZ, you could buy a house in Belmont Perth and in Belmont Lower Hutt and pay the same price however buying in NZ would see you paying more for your money in regards to interest rates, NZ's OCR, mortgage rates etc. (Fensome)

Statistical data to back this statement up ANZ mortgage rates last week were offered as followed in comparison to the same bank;

Australia, Floating 5.88%, Fixed two year rate 4.99%

New Zealand, Floating 5.99%, Fixed two year rate 6.29%

Althought this slightly varies from major lenders in NZ most banks are around the same interest rates for example ASB offers a two year fixed rate of 6.49% and a floating of 5.89%.

"ANZ offers a two-year fixed rate of 6.29 per cent. Its Australian parent, Commonwealth Bank, offers the same term for 4.99 per cent. That means the Kiwi ASB customer pays $629 interest per year for every $10,000 they borrow, while an Aussie with Commonwealth pays the equivalent of about NZ$529." (Fensome)

Influences and threats relating to the NZ economy are things such as;

•    NZ low level of house old saving

•    Less saving means banks need to borrow from overseas due to lack of domestic funds

•    NZ's small market size

•    Volatility of NZ

•    NZ's values of goods and services imported is considerably greater than that exported and has been for over 40 years and technically speaking this creates a persistent "current account deficit"

•    NZ has a need to invest in housing rather than asset

•    NZ preferred investment is housing

All these reasons lie towards why our economy is not as strong as others as stated Australia but economist Alex Fensome states in the article that the real reason lies with foreign investors and there willingness to lend to NZ, as is such a vulnerable market. Foreign investors define NZ as more of a risk to lend to as the economy is smaller or the value of the dollar could suddenly plunge.

Main focus point featured in the article: How the instability of New Zealands economy can be to blame for New Zealands property market.

This article relates to Welly Real Estate as it gives some sort of background into why our economy is what it is and the fact that New Zealand house prices, interest rates, lending power is so unjust in comparison to other countries and the stability of there economy.

Advise to Welly Real-Estate based on this article is that due to NZ's economy being so high, the company should then use this to there advantage as the demand of houses in comparison to the supply is fairly outweighed, "If supply exceeds demand, value goes up"(Blackboard Lecture 2) and although potential home buyers are less willing to buy with the economy and property market being the way it is. The fact of the matter is renting is not feasible these days as there is also high rental prices so home buyers are going to continue to purchase houses no matter the price so Welly Real Estate should continue to push sales. Renting is deemed unfeasible because with high renting prices property manages and landlords are charging rentals buyers are so high that in the long run there money ends up going no where, where in turn if someone was to purchase a house at still a high rate at the end of it they have a valuing asset (Long term asset*), renting is not an asset.

*Long term asset: Long term assets are those that have a useful life of more than

a year 

*OCR: The OCR is an interest rate set by the Reserve Bank of New Zealand which defines the wholesale price of borrowed money. This directly affects the commercial banks, determining the rates they offer their customers. So it affects the rates banks charge for borrowing (mortgages, loans, credit cards) and what they will pay customers for saving (term deposits, savings accounts).

Works Cited:

Fensome, A. "Kiwis pay extra high mortgages over 'risk'". Web, 25 March. 2014. 

http://www.stuff.co.nz/dominion-post/news/9859273/Kiwis-pay-extra-high-mortgages-over-risk

Helm, A. "Interest rates rise". Web. March 24. 2014. 

http://www.interest.co.nz/property/69100/alistair-helm-assesses-how-property-market-will-react-and-handle-coming-interest-rate

Gareth Morgan Investments. "The official cash rate explained" Web. 2 April. 2014.

http://www.gmi.co.nz/answerroom/1450/the-official-cash-rate-explained.aspx

ASB. "Interest rates". Web. 2 April. 2014. https://www.asb.co.nz/Personal/Home-Loans/Interest-rate-options/Variable-rate

Blackboard lecture slides. Web. 2 April. 2014 https://blackboard.vuw.ac.nz/bbcswebdav/pid-1432991-dt-content-rid-2142585_1/courses/2014.1.BILD261/Lecture2.pdf