Since Alan Bollard reduced the OCR in response to the Christchurch earthquake, three year fixed interest rates on residential mortgages have been somewhere just under 7%pa. With floating rates down around 5.75%pa, there hasn’t been a lot of incentive or urgency for Kiwis to fix their rates.
But in the past fortnight we have seen the June quarter annual inflation figures well above expectation – as well as higher than expected economic growth. Many borrowers are figuring that time has run out for comfortably biding time floating while planning to fix just before rates rise – and we are already seeing some fixed rates creep upwards. Many folk who are a little risk averse with interest rates are starting to figure they should “do it now”.
So here is the response from a bank on Friday to one client’s request to negotiate a favourable 36 month fixed rate:
Thank you for your email.
With regards to your enquiry on a negotiated rate for clients Xxxxx Limited, I am pleased to advise that we can offer 5.75% for 36 months to retain your client.
Based on the information supplied, can you please confirm if your client would like to proceed with the fixing of their 02 suffix.
If accepted the offer will only be valid as quoted until 5.00 pm at the end of the next business day (25th July 2011)
Amazing. A 36 month fixed rate of 5.75%pa has been unheard of ever – except maybe during a few brief weeks in the depths of the GFC around February 2009. Surely that was a typo?
Of course our client responded within the deadline for accepting that nice rate – and also arranged to break their other existing fixed rates in order to jump onto this rather incredible deal.
Soon afterwards, the bank contacted our client explaining that the 5.75% offered in Friday’s email was indeed a typo – and that it should have read 6.75%.
Hmmm. So now where does the bank stand?
From my Commercial Law 101 days I know that the three main prerequisites to the formation of a binding contract are these: (1) offer and acceptance (2) consideration (3) an intention to be legally bound.
It seems to me that all three essential elements are covered right there in the email history between our client and the bank.
And as luck would have it, the director of our client company had a previous career as a lawyer - and she knows a lot more about offer and acceptance than I ever will. She pointed out to the bank in no uncertain terms that they had made a written offer which was accepted – and that a binding contract had been made by email.
The bank relented – and our client’s company will now enjoy the very nice rate of 5.75%pa fixed for the next three years saving a rather healthy sum.
So the moral of this story actually has nothing to do with interest rates or the unnamed bank. Really it’s all about this:
“Be very careful about what you commit to by email. Contracts made by email are legally binding in the same way as contracts made in writing or face to face.”