ANZ and WestpacTrust's moves to trim floating mortgage rates, effective today (Friday), are just the latest in a flurry of mortgage rate cuts since the Reserve Bank's Official Cash Rate review a fortnight ago.
The two have joined the National Bank and ASB Bank in offering an 8.5 per cent floating rate, down from 8.8 per cent (from 8.75 per cent in ASB's case). Others to trim include AMP Banking (down from 8.6 to 8.3 per cent, and ASB Bank offshoot BankDirect (8.45 to 8.25 per cent).
That's not all, as lenders have been taking the shears to fixed rates as well. Most of the moves have been for shorter-term rates: AMP Banking is now offering 7.79 per cent on one-year terms, while others have clipped rates to 7.95 to 8.10 per cent.
There's also been action on longer rates, with the five-years now down as low as 8.25 per cent (see our rates table for more details).
The Reserve Bank let well alone when it reviewed the OCR on August 16, but there's still a chance of another rate hike before the end of the year at either the October 4 or December 6 review. That means there could still be some heat left in floating and short-term interest rates, although economic commentators have been predicting that they'll peak later this year or in early 2001.
ASB Bank's Senior Economist Rozanna Wozniak says the major driver behind recent falls in long term rates has been that many overseas bond markets have begun to think official interest rates may be near their peak. "These falls in bond rates have so far been tentative, and it is a little early to say that they will all be sustained. This is nevertheless where the downward part of the interest rate cycle is expected to start - with falls in long-term interest rates."
Looking at shorter-term rates, the key influence here is the OCR. Wozniak says that, while another small rise in this rate (0.25 to 0.5 per cent) is still possible, ASB Bank is picking the first fall will occur by the end of next year and will be pre-empted by falls in long-term rates.
And if you're planning to fix, Wozniak cautions that the longer-term rates (three to five years) still aren't attractive. "These rates have started to edge down, but are still not far from their peak."
"The temptation to fix for a long period of time is expected to increase during the next few quarters as three to five year fixed rates edge lower: these are likely to become the cheapest alternative for borrowers. However, it is important that borrowers, particularly those wanting to be proactive in minimising interest costs, put these long-term fixed rates into a historical perspective."
"Over the course of an (interest rate) cycle, consumers are expected - on average - to have to pay a premium to fix for a longer term."
