Which way to jump?
Short term fixed rates are likely to lift over the next six months, according to the latest home loan rates report from ASB.
The report shows that the landscape of the mortgage market since March has been that of a steadily steepening slope. Long-term mortgage rates have climbed a long way as risk aversion died away and expectations of global recovery became firmer.
ASB economists believe that as it becomes more likely that the RBNZ will start lifting the Official Cash Rate (OCR) at some stage over the next year, short-term fixed rates are also likely to lift over the 6 months. In October the RBNZ said it will keep the OCR unchanged until the second half of 2010, however, the risk is an earlier lift in rates.
In recent weeks the NZ economic environment is looking healthier and inflation pressures less likely to weaken as much as banked on. In particular, house prices are starting to lift sharply due to a dearth of listings. The report suggests that the challenge for borrowers is that wholesale rates (and hence mortgage rates) are already factoring in a substantial increase in interest rates over the next year.
That means the potential cost savings from fixing have steadily been eroded over time. Given little likely cost advantage between floating and fixed terms, preference will be more dependent on factors such as desire for certainty over flexibility.
According to the Bank, the 1- and 2-year fixed mortgage rates still provide some certainty, though no likely cost advantage over remaining floating or fixing for 6 months. However, they do provide some protection should the RBNZ lift interest rates even earlier than is generally expected. Once again ASB reiterate that each borrower’s situation is unique, so it comes down to the individual weighing up his own requirements.