Mortgage rate hikes that never eventuated

Threats of interest rate rises have come to nothing over the past year – as a new rate offered by SBS Bank and TSB Bank highlights.

The two banks are offering a one-year special rate of 4.44 per cent. The market median is 4.99 per cent.

That’s despite warnings that interest rates would track up over

2017. In January last year, the big four banks were offering one-year rates of between 4.89 per cent and

4.95 per cent. Only Kiwibank had a cheaper rate, at 4.35 per cent.

Infometrics chief forecaster Gareth Kiernan said there were a range of factors that had kept rates low, including the economic outlook softening, the housing market responding more markedly than expected to the loan-to-value rule tightening, and international interest rates staying low.

‘‘The softer economic outlook means that the risks of inflation accelerating have diminished and gradually pushed out the timing of the first expected official cash rate [OCR] increase,’’ he said.

‘‘The much softer housing market has also reduced the need for any interest rate rises by the Reserve Bank, and, with less of an imbalance between the demand and supply of funds, has meant that the banks have not needed to push up their retail rates.

‘‘Finally, the reversal in longterm rates after their surge in the wake of [US President Donald] Trump’s election has meant that fixed rates have also been able to come back.’’

He said, in many respects, borrowers at the beginning of 2018 were in much the same position as at the start of 2017.

‘‘If anything, though, the indications are arguably less emphatically pointing towards rate rises than when we were looking forward in early 2017.’’

Meanwhile, ASB economists have said a significant house price correction is unlikely.

They said most homeowners were well placed to continue paying their mortgages – and that the market would only hit trouble if people were forced to sell during a downurn.

According to Statistics New Zealand figures, almost 80 per cent of all households with a home loan spent less than 25 per cent of their gross income on servicing it.

‘‘It would take a sizeable climb in mortgage interest rates coupled with a shock that significantly hit employment and local incomes to drive a significant fall in house prices,’’ the economists said.

‘‘In the current Goldilocks backdrop, it is hard to put an exact timeframe around when (or if) this might occur.

‘‘There is the risk, however, that a localised shock could cause significant disruption. Mortgage debt holdings tend to be heavily concentrated, with RBNZ figures suggesting that around 8 per cent of households hold about 40 per cent of total housing debt.’’