Western Bay homeowners holding hefty mortgages gained some unexpected relief this week when interest rates hit some of their lowest levels on record.
The major trading banks cut their fixed home loan rates by up to half a per cent, with the one-year term diving under 6 per cent.
This provided a saving of more than $20 a week in interest on a $300,000 table mortgage spread over 25 years.
"A half per cent reduction in your mortgage rate makes a significant difference - in some cases, it's more than what you got in the recent tax cuts," said Shaun Riley, chief executive of Mike Pero Mortgages.
"It will certainly help housing affordability.
"It's good news because everyone was preparing for an increase in rates from the middle of the year, but this has changed," he said.
The latest reductions occurred after swap rates fell in the days after the Christchurch earthquake.
Swap rates are the borrowing rates between financial institutions.
The retail interest rates are set at a margin above the swap rate.
The three-year swap fell from 4.17 per cent to 3.78 per cent after February 22, the day of the earthquake, and the one-year swap went from 3.37 per cent to 2.91 per cent.
It meant the one-year home loan rate finished up at 5.95 per cent, falling from 6.45 per cent - just short of the lowest level, 5.5 per cent, in the depths of recession in mid-2009.
It was the biggest single drop in mortgage rates since the terrorist attacks on New York on September 11, 2001.
Other fixed term mortgage rates fell between 0.2-0.3 per cent, with the lowest two-year rate at 6.40 per cent and three-year 6.90 per cent.
Short-term fixed rates reached 10 per cent before the onset of the recession in early 2008.
The variable/floating rate next week is also likely to fall under 6 per cent when the Reserve Bank reviews the official cash rate (OCR).
The financial market expects the bank to cut the OCR by up to half a per cent because of the lingering economic recovery and ramifications of the big earthquake.
The market also believes that interest rates won't rise at all this year.
"These are steep declines in rates; it's quite unusual," said Mr Riley.
"The interesting thing is that over the past two years there's been a shift in the mortgage market.
"Previously 80 per cent of mortgages were taken out on a fixed rate and this has dropped to 60 per cent with more people moving to the variable rate.
"Now, people can look at fixed term rates again after the latest falls and getting a three to five-year term in the 6 per cent range is doing well - it gives long term certainty," Mr Riley said.
He said often it wasn't worth breaking a mortgage.
The cost of doing that matches the savings made on the lower rate.
"It maybe worthwhile for people on an older rate of around 9 per cent to look at breaking," he said.
"But it is a good opportunity for people who have renewals coming up to lock in at a lower rate, and for people to consider moving off the variable."
On the other side of the ledger, bank deposit rates have fallen in line with the reduction in home loans.
A deposit of $10,000 now fetches around 4.5 per cent for six months, with little rise for one year term.
Inflation is presently running at 2.8 per cent, and the investment return is low.
The pressure comes on depositers, looking for higher returns, to consider other investment prospects such as property.
The drop in home loan rates has been welcomed by the local housing market which is experiencing a lift in sales activity, as more listings take place and vendors are more realistic about their asking prices.
Real estate firms reported they have doubled their sales in February - some doing a deal a day - following the slow January with 44 sales in Mount Maunganui and Papamoa, and 66 for the rest of the city.
Max Martin, franchise owner of Harcourts Advantage Realty, said there is plenty of stock available and vendors are getting more realistic all the time. "They want to get on with their lives, and buyers now have a good choice."
He said rents were steady, if not rising, and house values were not going up for a while.
"Investors looking for better returns can now consider property - and the interest is filtering through."
Gil Beadle, spokesman for Eves Realty and Bayleys, said his firms' volume in February was substantially ahead of January.
"There is more confidence in the marketplace. In the auction room, we are getting bidding on 70 per cent of properties - we didn't see that all of last year. Even if they haven't sold at auction, we have put deals through afterwards," he said.
Mary O'Sullivan, a director of Tozer Real Estate, said her firm had doubled sales over January and February compared with the same period last year.
"That's a good sign. Vendors are more motivated to sell. They are aware that they can't get their dream prices and it's taken them a while to wake up to this. The market has changed in the last three years," she said.
Mrs O'Sullivan said the fall in home loan rates would encourage investors. "There is a strong demand for rental properties."
Tozer had attracted more interest by providing free professional photography to vendors, she said.
John O'Donnell, L.J. Hooker franchise owner at the Mount and Papamoa, described February as a "spectacular month - the biggest number of sales we've had for two years."
"Most of the sales are still under $600,000 and there's a bit of rental investment coming through."
State of the market
* Best home loan rate: 5.95 per cent for one-year term.
* Long term certainty: Three-year term now 6.90 per cent, down from 7.10 per cent.
* Best deposit rate: 5.35 per cent for one year with minimum of $5000.
* Lower return: Most one-year deposit rates at major banks now 4.7 per cent.
* Housing lift: Monthly sales have doubled in Tauranga in February, compared with January.
* Investor interest: People are again looking at rental properties, with rents remaining firm, even rising.
Relief as mortgage rates fall
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