ANZ expects house prices to rise 6 percent over this year. Photo: fantasista/123RF
Anyone who wants to lock in interest rates at the bottom of the market "might want to start thinking about how much longer they want to wait", economist at the country's biggest bank say.
ANZ's economists have released their latest Property Focus report, which looks at the property market and home loan interest rates.
They said movements in interest rates since their last update towards the end of last year had been driven by wholesale markets over summer.
They said they had been talking about how borrowers would time a shift from short-term fixes to a longer term option.
Shorter terms have been popular with New Zealand borrowers while rates have ben falling.
"Fixed rates may not fall a lot further now that the OCR is approaching what many forecasters expect to be the low. We, for example, expect the OCR to bottom out at 3.50 percent in April, which is only 25bp below where it will soon be, assuming the Reserve Bank follows through on its signalled 50bp cut in February, which will take the OCR to 3.75 percent.
"But as those cuts are now priced in (and almost universally expected by other forecasters and financial markets), when they are delivered, they are unlikely to have much of an impact on wholesale interest rates, and by extension, mortgage rates."
They said that meant the question for borrowers would be whether the time was right to extend their fixes.
"Everyone's situation will be different but for our part we are not expecting further significant falls. While competitive pressure shave the potential to deliver further small falls, absent a radical rethink of where the OCR may bottom out, most of the move in wholesale rates is likely to be behind us."
They said people who were looking for a cheaper four- or five-year fix might feel they had missed out now some of those longer-term rates had risen.
"That may well prove to be the case but given how quickly things can change and the tendency for one-to-two-year rates to be cheaper... a string of one- or two-year fixes may be more attractive anyway."
They said the breakeven calculation suggested one-year rates needed to fall by 0.3 percentage points in the next year for two one-year fixes to be cheaper than two years at 5.44 percent.
"That's possible, but it could be a stretch, and at this juncture, a sure thing (the two-year at 5.44 percent) may be preferable to a punt (that the one-year may fall to 5.29 percent).
"Some may want to wait till after the Reserve Bank's February meeting, just in case they signal more cuts, but don't forget, they have already cut a long way. There are always risks - the economy may fall over again, and a lower OCR may be needed. But equally, global long-term rates are rising, and that may drive local rates higher too. And for that reason, we always think it makes sense to consider spreading your risk across several terms. But in terms of core strategy, we see merit in extending soon."
ANZ expects house prices to rise 6 percent over this year.
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