ASB releases Home Loan report

Interest rates should stay at current levels until RBNZ hikes rates in August 2019

ASB releases Home Loan report

ASB expect floating and short-term fixed mortgage interest rates to remain at current levels for the rest of 2018, with rates to drift up prior to the Reserve Bank’s (RBNZ) hikes from August 2019, the bank noted in their Home Loan Report released yesterday.

The bank added their expectations of a “mild RBNZ tightening cycle” suggest that the 1 to 2- year part of the mortgage curve should continue to offer good value for customers.

“There is the risk that mortgage interest rates will move up more quickly and significantly than what our forecasts currently assume. Borrowers who place a high premium on certainty and stability may want to consider fixing a portion of their loan for longer terms,” ASB noted.

ASB said the OCR, which has remained unchanged at 1.75%, is a major factor influencing floating and shorter-term fixed mortgage rates, the “on-hold until August 2019 OCR view” suggests a period of stability for these mortgage interest rates.

“We expect forthcoming monetary tightening in New Zealand to be modest in relation to historical norms, which should cap the degree of uplift in local short-term rates.

“Our bias also remains for longer-term mortgage rates to drift up, given gradual increases to the OCR ad the drift higher in global longer-term interest rates. This will eventually flow through into higher New Zealand wholesale and mortgage rates, particularly for tenors longer than the 2-year fixed rate.

“The risk is that mortgage interest rates move up sooner (and by more) than we expect. The catalyst could be the OCR moving up earlier and more aggressively that what our forecasts assume as well as the lift in global rates feeding through into higher local longer-term yield,” ASB noted.

“On top of trying to minimise interest payments, a good mortgage strategy also needs to take into account an individual borrower’s cash flows, tolerance for uncertainty, and the ability to deal with changes in future mortgage payments as interest rates change.

“Borrowers’ financial circumstances can change too, and this needs to be taken into account. Overall, it is important for borrowers to weigh up their own priorities and make the mortgage choice that looks best aligned with their needs”.


Related stories:
OCR expected to lift in August 2019, ASB  
OCR unchanged at 1.75%, RBNZ