Source: Radio New Zealand
The Reserve Bank indicated it expected to raise interest rates a little faster and earlier than previously forecast. fantasista/123RF
Westpac says it is cutting its three-, four- and five-year home loan rates.
It is the first bank to move after the latest official cash rate (OCR) announcement.
The Reserve Bank indicated it expected to raise interest rates a little faster and earlier than previously forecast – but not as quickly as markets had priced in.
Wholesale markets fell as a result.
Commentators said it could be good news for borrowers and should mean a temporary end to the increases in home loan rates seen in recent weeks.
Westpac said it would cut its three-year special to 4.99 percent, which it said was the only three-year rate below 5 percent at the main banks.
The four- and five-year rates will drop by 20 basis points to 5.19 percent and 5.29 percent respectively.
Meanwhile, ASB economists say borrowers need to work out the best strategies for their circumstances in the current environment.
“With so much going on, it is an important time to have a mortgage plan.”
They said shorter-term rates were now down the most compared to their peaks. Floating, six-month and one-year terms are all 2.9 percent from the highest point.
Senior economist Chris Tennent-Brown said the message for borrowers was that rate were likely to rise over the next few years.
“The timing of when they’ll go up is the uncertain bit and that just depends on if inflation cools quick enough for the Reserve Bank to be comfortable on the sidelines for this year or they need to act earlier or swifter than their forecasts imply.”
It has tended to be the case that a series of one-year fixes has proved cheapest overall, over time.
Tennent-Brown said whether that continued would depend on whether inflation and the economy turned out to be stronger than expedited.
“There’s still a lot of value in strategies like splitting mortgages over one, two and three years.
“It still comes back to that story of balancing up people’s needs for certainty because you can get a lot of certainty now for historically low prices.
“We don’t expect one-year mortgages will get up to the levels that the four- and five-year mortgages are unless inflation turns out to be a much bigger problem than we’re currently thinking.”
He said one- and two-year rates had historically been where banks were most competitive.
“It looks like it’ll be the place to be, but I don’t want to discount the certainty you get if inflation turns out to be more persistent than the current thinking is, for some of the longer-term rates.”
He said he expected one-year rates to get into the early 5 percent range and two-year rates to go a little higher.
“Clearly the low point in rates is at best here and likely behind us. So you just need to work out, what are your needs for flexibility and what are the big risks for you? If I had a lot of debt and I couldn’t deal with rates getting too much higher, there’s a lot of value in those longer-term rates.
“If I need flexibility, the part of the curve around the one-year space has worked incredibly well for years and based on our forecasts should be okay, but it doesn’t give you much protection if inflation and higher interest rates turn out to be on the horizon.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand