Mortgage borrowers in New Zealand may soon benefit from a dip in the mortgage rate, with experts and economists estimating a much more favourable borrowing atmosphere ushered in due to good economic conditions.
Another 50 basis points deduction to the OCR is expected in February by the Reserve Bank, with further declines during the year. Wholesale interest rates have already been on the downtrend owing to these market anticipations. For example, the two-year swap rate has fallen from that historic high of 5.79 per cent late in 2023 to just above 3.4 per cent, while the one-year rate has experienced a comparable fall from 5.69 per cent to around 3.5 per cent over the same period.
This has opened the door for banks to lower home loan rates further. Analysts predict reductions as high as 50 basis points over the coming months, even without additional OCR cuts. Part of the reason is the overall drift of unlikely long-term deposit rates downward that would allow lenders to reduce borrowing costs.
Currently, the lowest advertised headline rate for a fixed period of up to three years is 5.49 per cent, available with ASB and Westpac. With the continuing decline in wholesale and term deposit rates, it is not unlikely that borrowers will soon be enjoying rates below the all-important 5 per cent mark.
Economists, however, state that a large part of the decline in mortgage rates was forward pricing in the wholesale markets. At the end of last year, the expectation of lower interest rates led to a cut in home loan costs greater than OCR. This trend is expected to continue because banks will be realigning their offerings with wholesale.
Falling interest rates bring big relief, especially to house owners. Some would save as much as $9,000 annually when purchasing a median-priced home with a 20 per cent deposit. These savings would be especially meaningful since a sizeable percentage of New Zealanders are mortgage holders.
New Zealand’s mortgage borrowers now stand to benefit from further downward movement, as future movements of the OCR by the Reserve Bank can lead to lowering rates at wholesale levels. Mortgage rates may soon slip below the 5 per cent mark, something that would be very sweet for most homeowners and those entering the market. At the end of the year, these developments could be huge advances towards more affordable housing and heightened confidence in the economy as a whole.
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