Home loan rates still a game of chance
BNZ is the latest bank to reduce the interest rates it charges on its home loans. It said yesterday that it was cutting a range of rates.
Its two-year special rate on its Classic Home Loans drops from 6.59% to 6.45%. Its three-, four-, and five-year rates drop to 6.59% from 6.69% to 6.79%.
Standard home loan rates, available to people who do not have 20% equity, also dropped.
While longer-term rates are generally dropping, some commentators have warned that they are not necessarily a sure bet for borrowers.
John Bolton, founder of Squirrel Mortgages, said there was an inverted yield curve, with longer rates cheaper than shorter ones, which was what happened when markets saw the peak of interest rates ahead.
But he said that could bring trouble for borrowers, particularly those sensitive to increasing rates.
‘‘Everyone rushes out to the five-year because it’s a little bit cheaper, and there’s a little bit more money in their back pocket, and then the curve collapses, and suddenly the short-term rates are lower, and suddenly these guys face all these break fees,’’ he said.
Economist Tony Alexander said he would not touch the five-year rate ‘‘with a bargepole’’.
‘‘Or the four-year rate. I’d probably not go anywhere near fixing three years – or two years,’’ he said in a recent update.
‘‘Personally, if I were fixing in the near future I wouldn’t look beyond one year with an expectation of riding easing monetary policy downward over 2024-25, but without any firm idea on when that easing will start and how much it will add up to.’’
It is expected that the Reserve Bank will increase the official cash rate again this month but some economists now expect it will only move by 50 basis points rather than the 75 previously forecast, due to weaker-than-expected labour market and inflation data.
Gareth Kiernan, chief forecaster at Infometrics, said he would avoid longer fixes. ‘‘There’s two possible paths for interest rates from here. One is that mortgage rates have peaked, at least at the longer end, and that there’s probably not much further for short-term rates to go up,’’ he said.
‘‘The logical companion of that assessment is that the economy will be in recession in coming quarters, and that there’s potential for interest rates in 12 months’ time to be significantly lower than now. That outcome would leave people fixing for five years, because it’s the lowest rate available, feeling a lot of regret by 2024 or 2025, when they are stuck paying a much higher mortgage rate – as occurred in 1998-99 following the Asian Financial Crisis or in 2009-10 following the Global Financial Crisis.’’
But he said it was also possible that banks had got ahead of themselves, as they did in July and August last year, and fixed mortgage rates could still rise further.
‘‘We’ll get a better feel for whether that is the case at the Reserve Bank’s next Monetary Policy Review later this month. If the bank remains more hawkish than forecasters have been suggesting since the CPI came out last week, then we could see wholesale rates rise further over the next couple of months and the recent rate cuts would reverse out.
‘‘Although the latter outcome could mean that jumping in and taking advantage of the temporarily lower long-term rates would be a relatively good outcome for borrowers in the near-term, there’s still a significant chance that those long-term rates end up being relatively expensive once we’re over the interest rate hump and inflation has been brought back under control. On that basis, I’d tend to recommend sticking with the shorter-term rates [one or two years], because the balance of probabilities suggests that they will still end up being the lower-cost option over the long run.’’