Fixed mortgage rates have been tracking downwards at pace following last week’s Official Cash Rate (OCR) cut.
The big news over the last few days has been the two-year fixed rate finally cracking the sub-5% mark—with most banks (including ANZ, ASB, BNZ and Westpac) now offering a two-year rate of 4.99%.
Now, remember that in the long-term—once we’re back at a ‘neutral’ OCR of around 3%—mortgage rates are expected to settle somewhere between 4.50% to 5.00%. So, that’s getting to be a pretty good looking rate, even though it is right at the upper limit of that range.
Across some of the other fixed-rate terms, the best one-year rate we’re seeing in market at the moment is slightly higher, at 5.15%, while the most competitive three-year rate is sitting at around 5.29%.
What does that mean for anyone fixing or refixing their mortgage rate at the moment?
The general advice to borrowers in recent months has been to fix short-term, in anticipation of further rates falls to come.
But now that we’re starting to see rates out there below 5%, it’s worth thinking about fixing all, or part, of your mortgage for slightly longer—with a number of borrowers currently favouring that two-year option.
Depending on your personal situation, another alternative would be to fix for six months or perhaps even camp out on a floating rate for the next few weeks. While that means you’ll be paying a higher-rate in the short-term, it will allow you to take advantage of further rate falls when they come through.
A final note on cash contributions
Bank margins—i.e. where mortgage rates are sitting relative to wholesale rates—have started to tighten up with this latest round of cuts, which will have a flow-on effect in terms of the sorts of cash contributions we’re seeing on offer in market.
Cash backs have been running at about 0.85% to 0.90% in recent weeks, but the expectation is that those will drop as bank margins get further squeezed.
__Check back in again next week for the latest news on New Zealand interest rates. __
