Economists have predicted that New Zealand’s mortgage interest rates will drop a bit further, but not as low as 1% to 2% rates that other countries offer.
In the UK, two-year rates for home loan borrowers are available from 1.4% to 1.9%, while 10-year rates are available at 2.5%. Meanwhile, a typical two-year home loan special from main banks in New Zealand is 3.79%.
Dominick Stephens, chief economist at Westpac, told Stuff.co.nz that the closer to zero the official cash rate was, the less of an impact it had on mortgage rates.
Gareth Kiernan, chief forecaster at economic development agency Infometrics, added that another determinant of what borrowers pay was the rate on government bonds. If mortgage rates were to hit 3%, bond rates would have to drop to 0.5%.
"Given we have got bond rates that do look to be at record lows, that's a fairly big ask although we might have said that when they were at 2.5 per cent,” Kiernan told Stuff.co.nz.
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The economists expected between 3% and 3.25% of home loan interest rates if official cash rate cuts will be passed on to borrowers in their entirety.
Meanwhile, to get mortgage rates down to 2%, Nick Tuffley of ASB Bank explained that the official cash rate would have to be cut close to zero with an expectation that it would remain extremely low for some time.
"This scenario would require depositors to be happy to leave deposits in banks despite earning at an interest rate that is close to zero,” Tuffley told Stuff.co.nz.
When asked if a 1% mortgage insurance rate can be achieved, Tuffley said that it would require extreme circumstances, such as negative official cash rate and potentially quantitative easing.
"Deposit rates would likely be zero or slightly negative in order for banks to still have enough of a gap between funding costs and lending rates that is sufficient to cover capital costs and other operating costs," he said.