December 2010

Merry Christmas from the Moneyscience team

Well, now 2010 limps to a close... a tough year for most. From most of the business people I speak with, they have had an extremely tough year, and expect the same for next year as well. I expect we will see a brief upsurge in positivity around the time of the Rugby World Cup next winter, and then back to more of what we have had this year I am afraid.

The last few months have been extremely uneventful which is why I haven't sent out meaningless newsletters... I have been waiting for something to change.

- Interest rates have stayed the same...
- Lenders' attitudes haven't really changed...
- People who have needed to sell properties have had extreme difficulties (even if they want to), often they cannot.

Some commentators continually tell us that the worst is over & now things are on the up...But they are the ones who benefit from us believing that.

Interest Rates

I feel that Interest rates will climb very slowly from mid next year, but I only expect to see a 0.5% increase in rates over the next 12 months, which should bring our standard floating rates into the range of between 6.3% and 6.7%. I believe that the rates will increase in 0.25% increments and not each review (reviews are about each 7 weeks).

I expect that we will see rates remaining at their current levels for the first quarter of next year and then slowly increasing through the second half. There may even be slight reductions over the coming months. This would mean that staying on floating rates now makes sense, however I would recommend locking into medium term fixed rates (currently around 6.5%) BEFORE they start to increase next year. I expect that the rates will not move (upwards) until about April to July next year, but beware - Lenders will increase their medium term rates BEFORE any increase in the OCR (Official Cash Rate as announced by the Reserve Bank) so it will be important to “pick” the right time to fix your interest rates before this happens.

Changing from a floating rate of say 6.25% to a 2 year fixed rate of say 6.6% may seem to be the wrong thing to do as it will cost more when you do it. However if interest rates increase say 0.5% in the coming 6 months and you are locked in for 2 years, I believe you will be better off in the long run. I would recommend away from fixing for say 5 years as that is a long time, and interest rates would need to reach about 9.5% over those 5 years for you to break even.

Hopefully we will see some reductions in the medium & longer term rates over the coming month or two. After then, I will likely recommend fixing rates for a year or two. I will send another email newsletter when I feel rates could be likely to increase... but please remember that is like picking the next lotto ball to come up!

I expect that we have another year or two to go before our economy slowly enters the growth stage.

Insurances

You get what you pay for. Many people shop around for insurances (particularly House & Contents and Vehicle covers). However, the price you pay is irrelevant when it comes to making a claim. You want confidence that the company will be there for you and pay you for any loss. I liken this to your favourite pastime or hobby. Mine is fishing. There is NO WAY that I would buy the cheapest rod, reel, nylon or hook... That would likely cause me to lose my best fish! What a waste! You may have saved money, but your result was NOT what you wanted - therefore the purchase was not sensible, where a small increase in cost could have yielded a considerably different outcome. You get what you pay for. If you want to pay a very low premium, then expect to have to face considerable angst (or even rejection) when making your claim. If you wish for us to make a quote for your insurance requirements, please email or phone us or fax us your current covers. We have not yet had a claim rejected (over the past 5 years) that we have handled for our clients. Remember that we will help with your claims when they arise.

Merry Christmas. We hope that all your Christmas Wishes come true.