Long-Term Rates Mouth-Wateringly Low
31 March 2015
Investors thinking about fixing their borrowing should note the best rates may run out by the middle of this year.
The Reserve Bank has indicated the official cash rate is to stay on hold for some time yet and floating and fixed mortgage rates are near historic lows.
BNZ chief economist Tony Alexander said the only factor likely to influence interest rates over the next year was United States monetary policy.
He said that was more of a driver of fixed interest rates in New Zealand than our own official cash rate. “If we see a tightening mid-year in US monetary policy that will put upward pressure on New Zealand fixed interest rates,” Alexander said.
He said that was an incentive to borrowers who were thinking about fixing to do so over the next few months.
But if you do decide now is the time to fix, what is the best term to choose?
The banks are clamouring for market share and encouraging borrowers to lock in their loans for longer terms.
TSB offers a 10-year fixed rate of 5.89%, HSBC is offering the same flat rate of 5.29% across terms of one to five years and SBS is offering a five-year rate of 4.99%.
Brokers said the other big banks were “very willing” to negotiate better offers for good business.
TSB chief executive Kevin Murphy said the 10-year rate offer had sparked an unprecedented level of interest. He would not say how many customers had taken it out, citing commercial sensitivity.
He said the loan might appeal to investors wanting certainty but the bank’s target market was first-home buyers. “We think it provides that degree of certainty. People who’ve, let’s face it, saved long and hard to get their deposit, this provides them certainty for a longer period of time.” Murphy said.
Adviser Karen Mooney said the market was very competitive, especially for customers who had a reasonable amount of borrowing and a deposit of more than 20%. Once one bank offered a rate, the others would usually match it, she said. “They’re pricing according to the deal.”
David Windler, of the Mortgage Supply Co, said longer-term fixed rates attracted a lot of interest, but most borrowers were still fixing for terms of two or three years. “People are wary of locking themselves in for that long,” Windler said.
But he said it could be a good idea for first-home buyers who had to push themselves to buy a property. If they could not handle an interest rate rise, the security would appeal.
Murphy said the bank was clear with borrowers about the terms and conditions of the loan. It can be transferred to new security if a property is sold.
None of the main banks have plans to offer longer fixed terms. BNZ offers the next longest rate, for seven years. A spokeswoman said there was no market demand for a longer term.