Mortgage holders urged to fix as US interest rates rise
Kiwi mortgage holders are being warned to think of fixing their loans after the United States ended its long spell of low interest rates.
The US Federal Reserve, its central bank, raised interest rates on Thursday morning by just a quarter of a percentage point, but it's only the second time since the global financial crisis that it has done so.
It also signalled up to three more rises next year, which would push up US interest rates to between 1.25 per cent to 1.5 per cent.
Although the New Zealand economy is going well, mortgage brokers warned that it was a reminder that the global economy could still have an impact on borrowers here.
The net effect was almost the same as an interest rate rise by the Reserve Bank, lowering the dollar and making offshore funds more costly for banks to borrow longer term.
Darren Pratley, owner of Auckland Home Loans, said the end of low interest rates was good news for anyone on a term deposit or reliant on bank interest.
For mortgage holders, a more conservative lending environment meant there would be little "blood on the floor, but there's still a lot of people in the market that are carrying a lot of debt"
"And if it's on floating rate, they're the ones who could feel it quickly so looking at fixed rate options is definitely something to be looking at now.".
Another mortgage broker Bruce Patten of Loan Market was not convinced it was the end of the low interest era.
"Yes, rates are going to go up but it's not going to be a sharp rise... and we've seen it before, we've seen rates start to rise and then the real story comes out, all those skeletons come out of the closet in Europe or ...somewhere else in the world. The global economy hasn't completely recovered from the GFC so we have seen false starts a couple of times."
His advice was to fix for a reasonable period of time.
"People tend to go for whatever's lowest and if one year's the lowest, they'll go for one year and if five year's the lowest, they might do five years.
"I think the reality is, rates are low, it's a good time if you're an owner-occupier, you should be looking to two or three years. If you're an investor, you should be looking at three to five years."
Both the New Zealand dollar and other currencies fell at the news, with the Kiwi dropping from US72.20c before the announcement to a low of 70.80c and then regaining ground to US71.05c in the late afternoon.
While a lower dollar makes it more expensive to buy things overseas, it is good news for exporters struggling to compete overseas.
Another industry likely to benefit was the tourism industry, because holidays here will be cheaper for tourists.
"We been watching and waiting for this for quite a long time," Export New Zealand chief executive Catherine Beard said.
"It tends to make the New Zealand dollar more realistic against the US dollar, but in the bigger scheme of things too, it means there's more confidence in the US economy, and from an exporter point of view that's good as well.
"A growing US is really helpful for the rest of the world, in that they're a huge consumer market."