Fixed-rate mortgage tipped as way to go
Mortgage holders on floating interest rates are being warned to consider below-average fixedterm interest rates before both rates start to rise.
Westpac senior economist Dominick Stephens urged people to keep a close eye on economic indicators over the next few months because fixed rates could rise earlier and faster than floating rates if the economy performed better than expected this year.
‘‘Fixed-term rates represent good value at the moment,’’ he said.
BNZ economist Tony Alexander agreed with Westpac that people would be better off fixing for the next two or three years but he said the question was when to fix and that he did not believe floating rates would move quickly.
‘‘Quickly to me sort of says, 1 per cent or 1.5 per cent over a period of a few months. What we’re thinking is the middle of the year is the most likely time those floating rates will start to rise.’’
He said the official cash rate, of 3 per cent, would likely rise to 5 per cent by the end of 2012.
‘‘So late 2012, I think most of the floating interest rates will be between 8 and 8.5 per cent.’’
He expects economic growth of above 3 per cent this year, with falling unemployment, rising wages and commodity prices. But he said those advantages would be offset by rising prices for food, fuel and raw materials.
And the unexpected must be expected, Mr Alexander said.
He said currency pressures were strong, Chinese inflation still threatened, the European debt situation was unresolved and the US economy was far from played out.
‘‘It’s almost guaranteed that all of our monetary policy forecasts will change as the year goes by because that’s what happened last year.’’
Westpac believes the economy will exceed Reserve Bank expectations of subdued growth for the next 12 months.
Mr Stephens said four factors are were crucial: the housing market; the economic impact of the Rugby World Cup; earthquake reconstruction in Canterbury; and rising commodity prices for farmers.