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Where Does It End?

Where Does It End?

With most banks dropping their rates further and further, there’s no end in sight for great lending deals, writes Ryan Smuts.

By: Ryan Smuts

1 June 2020

I feel like each month that goes by I’m surprised by the mortgage rates that hit the market. When we first saw banks go under 3% it was a shock – then not too long after that, in early May, we saw Bank of China come out with 12 months at 2.79% and 18 and 24 months at 2.89%. Other rates were still slightly above the 3% mark.

Within days a war had begun following comments from the RBNZ deputy governor, Geoff Bascand, who said they had expected to see more discounts passed on to retail borrowers.

ASB is currently leading at 2.69% in the two-year space and BNZ has all one to five-year rates under 3%. By the time this is published I wouldn’t be surprised if rates are even lower than this – banks seem more open to matching other lenders now than they were in the past few months.

Mortgage Trends

In terms of mortgage borrowing, many New Zealand mortgage holders are favouring the one-year fixed rate. This is due to it being the lowest and also the fact that rates are expected to stay low for the foreseeable future. This flexibility allows borrowers to have another opportunity to negotiate an even better rate in a year’s time.

At the moment if you are a borrower you might find that as your fixed rates come up for expiry (or in some cases break early because the savings are so large) that your repayments are considerably lower than they were the last time you fixed.

For those who are currently floating and wondering what to do with mortgage rates, be aware that the longer you wait on a floating rate you may be paying more upfront than you would if you had fixed short term and then tried to renegotiate again soon.

On the other hand, if your fixed rate is coming up for renewal soon I’d be waiting to see what happens and if further cuts are available. With most banks allowing you to lock in rates for the roll-over date about 45-60 days in advance (for certainty) it won’t necessarily make sense to do this in this environment as rates are almost unanimously expected to remain low. The risk of an increase in the short-term seems highly unlikely.

It’s a race to the bottom with more and more lenders discounting rates, and competition fierce. Banks are still open for new business, so if your lender is refusing to match another lender’s rates it might be worth shopping around or discussing this with your mortgage adviser. For good clients in stable positions (despite everything else going on) who are still meeting bank criteria, banks are still lending and wanting new business – so don’t think the doors are shut.

With the Financial Stability Report coming this week, it will be interesting to see what is announced. May has been a month full of events, with the budget announced (although not fully allocated) earlier in the month, too. Low interest rates will assist borrowers in working through the current economic situation.