It is a great time to be a borrower with plenty of equity stored up in a property. If you timed your last decision about a mortgage right, which means that you will have borrowing due for renewal this year, you can expect to be able to choose from some record low rates.
Mortgage rates have continued to fall following last week’s 1.5% cut in the official cash rate (OCR) to 3.5%.
The view among market watchers is that it may be too soon to lock into longer term rates just yet. The feeling is that the OCR is likely to fall further bringing more cuts in floating and short term rates. But borrowers need to watch the market closely from now on.
Chris Tennent-Brown, Commonwealth Bank of Australia NZ Economist, says: “On balance we see the prospect for slightly better fixed rates in the near future. However, more conservative borrowers may now want to consider gradually ‘averaging into’ low long-term fixed rates.”
Tony Alexander, chief economist at BNZ, writing in his weekly review, says that the bank’s latest two-year rate of 5.89% is a record for BNZ. The last time the rate was near this was in mid-2003 when it hit 5.99% for just two weeks. “That is most definitely not going to be the case this time around. Monetary policy is going to ease further, news from offshore continues to get bad, and the chances are rates will go lower.”
Rates now look tantalizingly low but this is only part of the story in today’s home loan market. Borrowers who need to borrow more than 80% of the value of their properties are likely to find it difficult to switch lenders, let alone get the best rates in the market. And some lenders are still charging more than 10% for floating rate money, which will be acutely painful for borrowers who are unable to vote with their feet.
Borrowers who are able to lock into low rates this year may might consider this as a golden opportunity to use the savings from previous higher rates to speed up repayment of their mortgages.