Rate changes have slowed to a trickle over the past week as the mortgage market settled following the latest cut in funding costs.
Most of the changes of the past few days have been from non-bank lenders. These lenders were generally slower than the banks to move rates after the fall in wholesale funding costs prompted by the Reserve Bank's prediction on 5 June that the official cash rate (OCR) would be coming down by the end of the year, earlier than anticipated.
Some of the reductions coming through from the non-banks have been steep; United Home loans for example has reduced rates on one, two and five-year terms by 50 basis points.
Economists are continuing to recommend that those who need to refinance now should look to fix for six months or one year in the hope that cheaper funds will be available at the end of those terms.
Westpac has trimmed its six-month rate by 10 points to 9.75% where it sits in the mid-ground of prices over this term. Rates over six months now range from 9.6% to 9.95%. Rates over one year range from 9.3% to 10.95%.
One-year terms may be tempting for many as they are cheaper than six-month finance and allow for the possibility that rates do not fall in a straight line. Borrowers should note that lenders' advertised rates are often negotiable, particularly through brokers, and that some lenders offer discounts on larger loans. Presto Direct, formerly Presto Mortgages, a non bank lender set up two years ago, has just relaunched its range, offering brokers the opportunity to offset commission from the lender to offer discounts to clients.
Mortgage rates may be falling but conditions in the property market remain difficult, as confirmed by the news that another finance company, St Laurence has ceased lending and raising funds from the public. The company says that it has been hit by late payments by property developer borrowers as well as low levels of reinvestment by investors.
Even when the OCR begins to fall from its current level, 8.25%, there are doubts that rates will fall to the low levels of recent years. Tony Alexander, chief economist at the BNZ has forecast that the OCR will be close to 6% towards the end of next year. The two-year fixed rate for mortgages will fall to below 8.5% late this year and will hit the five-year average of 7.8% next year. But he thinks it is unlikely that it will fall to the 6.5% low seen in 1999, 2001 and 2003 in the forthcoming rate cut cycle.