Economists favour string of fixes

Mortgage borrowers who want to pay the least amount of interest on their home loans are being told to consider a succession of fixes.

Economists predict little movement of interest rates this year. ASB economist Kim Mundy said, heading into 2017, the bank had expected rates to be higher by the year’s end.

But current rates are about the same as they were in January last year, and in some cases even lower.

Mundy said the bank expected interest rates to rise over this year, as moves in the United States pushed longer-term rates up and a gradual increase in the official cash rate put pressure on shortterm rates.

The loan-to-value ratio (LVR) restrictions on low-deposit borrowers are being eased, and Mundy said they could be expected to relax further this year.

However, there would still be bank competition – and better rates – for borrowers who had enough equity to fall outside those rules.

One- or two-year fixed terms are the cheapest rates on offer in most places.

Mortgagerates.co.nz shows a median one-year rate of 4.79 per cent across all lenders, and 4.99 per cent for two years.

There are also specials available: ASB is offering 4.45 per cent for one year to those who qualify.

Mundy said the cheapest option appeared to be fixing for two years, then fixing again for another two years when that rate rolled off.

ASB chief economist Nick Tuffley said: ‘‘Based off our forecasts the carded two-year rate appears the lowest-cost option, though there is not much difference between doing that or rolling a one-year fixed term.

‘‘Generally, the four- to fiveyear terms look the most expensive options over those time frames.’’

Four-year rates are a median 5.7 per cent and five-year rates are a median 5.92 per cent.

At ANZ, economists said the two-year rate was starting to look more tempting, but one-year terms still offered better value.

‘‘The one-year rate remains the low point on the curve. But the gap to the two-year rate is narrowing, which makes the decision between fixing for either one of two years a closer call.

‘‘The one-year rate would need to rise by only 21 bps [basis points], from 4.53 per cent to 4.74 per cent, over the next year in order for it to be cheaper fixing for two years at 4.64 per cent than rolling two oneyear terms. That’s not a huge rise in the one-year rate. So certainty looks ‘cheap’.’’

Economist Gareth Kiernan, of Infometrics, said retail interest rates had dropped a bit in December. Whether it was worth locking in a rate would depend on the borrower, he said.

‘‘Generally speaking we expect them to trend up but there’s no rush to go out and fix before they start climbing through the roof.’’

Broker Glen McLeod said he suggested borrowers fix for a mix of terms, so that they had some of the certainty of longer rates with the flexibility of short-term options.

‘‘If we can get a good special three-year rate at 4.49 per cent we we might grab that, but we’re not really pushing out to four- or fiveyear terms.’’