Economists say another mortgage rate dip is on the way

They outline the cheapest rate strategy for a five-year period

Economists say another mortgage rate dip is on the way

The mortgage rate market is likely to see another dip for floating and fixed rates despite them appearing to have “hit their lows” in late 2019, according to ASB’s latest forecast.

Senior economist Chris Tennent-Brown says that the Reserve Bank of New Zealand is likely to follow other central banks and cut the OCR soon in response to global risks, including the coronavirus. He says borrowers are therefore likely to see lower rates over the following months and can lock in very low rates now, though they should always plan to deal with higher interest rate costs further down the line.

“Our forecasts suggest fixing and then rolling shorter term mortgage rates is likely to be the cheapest option over a 4-year time horizon,” Tennent-Brown said.

“Only one month ago, ASB economists thought the RBNZ would keep the OCR on hold at 1% this year and next, unless the impacts of the coronavirus prove to be much larger and more prolonged than the short, sharp impact viral outbreaks tend to have,” he continued.

“Related to this, we also thought that the low point for domestic interest rates, including mortgages could be occurring about now. That view has now changed.

“Because of the swiftly-changing COVID-19 situation, we expect the RBNZ to now respond with OCR cuts. We have pencilled in 25bp OCR cuts for March and May, though the outlook will remain fluid.”

Tennent-Brown noted that mortgage rates are affected by “a range of factors” including the OCR setting, domestic and global fixed interest rates and other influences. He says that while the “best” mortgage rate is only known with hindsight, borrowers can get a significantly lower rate if they fix their mortgages and subsequently roll short terms, such as one or two-year fixed rates.

“As discussed above, mortgage interest rates could potentially move lower still,” he stated.

“Current rates on offer are very low, and fixing will provide some interest rate certainty over the term of the mortgage.

“Borrowers could also consider splitting the mortgage into different terms to better suit their preferences for interest rate certainty versus retaining flexibility.”

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