Mortgage Rates Update
Every month Max Loans will be reviewing the latest mortgage rates and providing you with some tips on what to look out for.
28 February 2018
Short Term Rates (<2 Years)
Floating and short-term fixed rates are primarily influenced by the Official Cash Rate (OCR) set by the Reserve Bank of New Zealand (RBNZ) and the level of competition within the banking sector.
The OCR has been on hold at 1.75% since September 2016, and is likely to remain at this level for the rest of 2018.
While inflation remains below 2%, it’s unlikely we’ll see a shift in the OCR, but keep an eye on inflation. If it drops closer to 1%, RBNZ will drop interest rates to stimulate economic growth; inflation rise will see interest rates rise to slow growth.
The good news for borrowers is there may be opportunities to secure competitive short-term rates as banks compete for a share of a slowing credit market.
Fixed/Long-Term Rates (>2 Years)
Current volatility in the US, a result of strong wage growth and signs of inflation, impacts heavily on long-term fixed rates. The US Federal Reserve will likely hike interest rates three times this year, a move that, along with Trump’s tax cuts and 2019 spending proposal, has sent global markets into turmoil.
New Zealand’s stock market remains at the mercy of Wall Street, and any rise in US interest rates places upward pressure on New Zealand mortgage rates.
Opportunities For Borrowers
Given the current situation, it’s cheaper for borrowers to remain on a floating or shortterm fixed interest rate. As the banking landscape remains fairly competitive, renegotiating or refinancing lower shortterm interest rates will provide borrowers with excellent savings opportunities.
When calculating the cost of any new borrowing and debt serviceability, it would be wise to factor in a buffer of at least 2% to account for a rise in interest rates. Any reduction in interest rates is an opportunity to pay off debt faster by keeping repayments at the same level.
Overall, the big picture is one of rates rising in the future, so keep a close eye on volatility in the markets and watch for “special” long-term rates. A mixed tier structure with loans split across various terms could prove profitable and prudent.
Low interest rates are likely to continue, but exceptionally low rates are likely to end sooner than expected.
The interest rates specified in this table were accurate on 22/02/2018. Interest rates are subject to change without notice. Different fees and charges apply to each loan depending on the mortgage lender. Seek expert advice to determine the mortgage lender that is right for you and your circumstances.
