Source: Radio New Zealand
RNZ / Marika Khabazi
Another bank has adjusted down its long-term rates, but borrowers deciding whether to take a longer term will need to weigh up a few factors.
BNZ said it was reducing its three-year rate by 10 basis points to 4.99 percent, its four-year rate by 36 basis points to 5.19 percent and its five-year rate by 40 basis points to 5.29 percent.
It comes after Westpac last week said it was trimming the same terms.
It was 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.
Mortgage adviser Glen McLeod, head of Link Advisory said, with longer term rates starting to come back down, he was beginning to see more interest in longer term fixed rates, but it was still a relatively small portion of clients.
“Part of my role as an adviser is to explain the pros and cons of where those rates currently sit and how suitable each option is for an individual client. I talk clients through what each rate term could mean in the current environment, where we are in the interest rate cycle, and what is likely to happen based on the best economic information available.
“From there, I look at different borrowing strategies and match them to the client’s goals. The key thing is ensuring clients fully understand the risks and what they are ultimately signing up for. Longer term rates can be appropriate in some situations, but it really depends on the person’s circumstances and risk profile.”
ANZ said in its latest Property Focus report that it was worth remembering that all rates out to two years are now below 5 percent whereas in late 2023 they were all above 7 percent.
“Given that, and our expectation that the next move in the OCR is likely to be up, we still see merit in fixing for longer at current rates, with the 18-month to three-year part of the mortgage curve likely appealing to many borrowers.”
They said four- and five-year rates were above where they expected one- to three-year rates to top out next year.
“From a pure cost perspective (that is, disregarding the value of certainty), one might only be inclined to fix for four or five years if you expect one- to three-year rates to rise above 6 percent over the next two to three years.
“That is possible, but it is not what we expect. Taking all of that into consideration, the 18-month to three-year part of the curve looks like the sweet spot, offering a good mix of certainty and low cost.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
