Economists at the country’s biggest bank say borrowers refixing their home loans now could do well to fix for 1-2 years.
Some banks have adjusted rates over the past week, as wholesale rates fall, particularly over longer terms.
In an update on Friday, ANZ said wholesale rates were falling in line with oil prices, after the de-escalation of conflict in the Middle East.
Its economists still expected a July increase to the official cash rate, but lower oil prices would take some of the pressure off inflation and give it a bit more time.
“It’s not the case that lower oil prices mean that the OCR doesn’t have to go higher, and how high it needs to go will depend on how quickly growth and confidence rebound.
“While many homeowners will welcome the prospect of a pullback in mortgage rates, the broad parameters of the quandary facing borrowers remain the same – fixing for longer gives more certainty, but costs more too and vice versa.”
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Given financial markets were pricing in a higher OCR end point than they expected and long-term rates were higher than short ones, they said there was probably more value in taking a shorter home loan fix. A one-year rate was as low as 4.65 percent at the main banks, compared to 5.39 percent for four years.
“However, all forecasts have big question marks around them currently, and those that want more certainty may want to hedge their bets and spread risk over several terms, or fix for longer, especially if we do see some longer-term fixed rates ease a touch over coming weeks.”
Based on a median one-year rate of 4.75 percent, they said one-year rates must rise to 5.83 percent in a year’s time to make a two-year fix a better option than two one-year fixes.
“We don’t expect one-year rates to rise by that much and, in broad-brush strokes, would add that the OCR would likely need to be nearer 4 percent than 3 percent for one-year mortgage rates to get closer to 6 percent, rather than 5 percent.
“Remember, the reason why the two-year is already higher than the one-year is that markets are already bracing for hikes, so when they come, it won’t be a surprise.
“However, uncertainty is high right now, and how much you are prepared to pay for certainty depends on your tolerance for risk or a possible unpleasant surprise. If that is low, a longer term or a mix of terms may suit you better.”
ASB economists expected the OCR to stay on hold in July and the first increase would come in September.
Westpac said it too expected the rate to hold this meeting and shift from September.
Infometrics chief executive Brad Olsen said his team were still assessing their predictions.
“We are less strong of the view that everyone was after the May monetary policy statement, that July was a slam dunk in terms of raising the OCR.”
He still expected the OCR to get back to at least 3 percent at some point, but the timing might change.
“Everyone goes, ‘Well, the official cash rate hasn’t gone up yet, so I’ve got time before mortgage rates go up’, but mortgage rates have already moved ahead of the OCR. That’s partly why they’ve then eased back a touch.
“Swap rates and bond rates have reduced from where they were at the recent peak, which has allowed a little bit of that ability to reduce retail rates.
“Is there a lot more coming? Probably not, but it also means that the first sign of an OCR increase wouldn’t immediately mean some of those fixed rates, particularly the longer ones, have to increase.”
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