It feels like the economic tide is genuinely starting to turn.
Anyone following the news in recent weeks might have noticed the general tone of media commentary has been just that little bit more positive—with more and more talk of green shoots emerging.
The recovery will be gradual, but it is underway.
On the interest rates front, the best one-year rate we’re seeing out there at the moment is a little below 4.49%, while we’ve also got a five-year rate at 4.99%.
At this stage, the consensus is that we’re in for one more Official Cash Rate (OCR) cut on 26 November—down to 2.25%
If it does happen, that could see the one-year fixed mortgage rate drop to 3.99% towards the end of the year.
While the prospect of a sub-4% mortgage rate is really exciting, it’s important to note it won’t be last forever.
Once the economy is firmly back on track, we’re likely to get a couple of small OCR increases from the Reserve Bank (timings TBC) just to get us back to its estimated ‘neutral’ point of 3%.
In the long-term, that means the one-year mortgage rate should settle at around 5.00%.
What does that mean for borrowers?
If interest rate certainty is really important, fixing longer-term (i.e. taking advantage of that five-year rate at 4.99%) may make a lot of sense.
Sure, it’s not quite as competitive as that one-year rate, but if you think about it over the span of five years, it’s still a really attractive option.
Otherwise, having a bet both ways—so you get the benefit of some of those lower short-term rates, and also having a bit of certainty over the remainder of your loan—is still a good call.
That said, anyone fixing for a year—especially if and when it does get down to that 3.99% mark—should do so with the expectation that when that loan matures in a year’s time, you’ll likely be rolling off onto a slightly higher rate.
Check back in again next week for the latest updates on New Zealand interest rates.
