- Interest rates have dropped to their lowest point in over three years ahead of the Official Cash Rate decision.
- Mortgage brokers predict rates could bottom out at 3.99% next year, encouraging mortgage holders to wait.
- The Reserve Bank is expected to cut the OCR, with experts divided on the size of the cut needed.
Interest rates have dropped to their lowest point in over three years ahead of this week’s Official Cash Rate decision, but mortgage holders may want to hold out before fixing.
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Mortgage brokers told OneRoof that interest rates could bottom out at 3.99% next year – 0.5 percentage points lower than the best one-year rates in the market right now.
Loan Market mortgage adviser Dave Williams said: “If the economy doesn’t pick up and the Reserve Bank chooses to use monetary policy to really create some stimulus, we could see 3.99% as a one-year headline rate – that is not unreasonable to think about it.”
The Reserve Bank is expected to cut the OCR on Wednesday in response to weak economic data. Experts, however, are divided on the size of the remedy needed: some believe the bank’s monetary policy committee will drop the rate from 3% to 2.75%; others are calling for a cut of 0.5 percentage points.
ASB’s chief economist Nick Tuffley has urged the Reserve Bank to "hit the gas harder" to help the economy and encourage consumer and business spending, predicting the OCR will drop to 2.25% before Christmas.
Williams said many of the major banks had already factored in a cut of 0.25 percentage points from the Reserve Bank. This week, ANZ, ASB, BNZ, and Westpac lowered their one-year rate to 4.49%.
However, Williams said there was scope for cheaper rates if the Reserve Bank is more aggressive in its cuts. “If it’s a 0.5 percentage point drop on Wednesday, then we would expect the rates that are available now at 4.49% to come down a bit more.”
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About 95% of his clients whose mortgages were due to roll over had decided to wait for the OCR decision before fixing. Others in the market have hedged their bets and re-fixed for only six months or split their mortgage across different terms.
Williams noted that many of his clients had maintained their repayment amounts at higher levels despite moving onto cheaper deals. “So that money the Reserve Bank wants to see flow into the economy, there’s not as much of it.”
Westpac New Zealand chief economist Kelly Eckhold told OneRoof he was picking a cut of 0.5 percentage points on Wednesday, and he raised the possibility of more cuts to come.
Westpac New Zealand chief economist Kelly Eckhold expects the OCR will drop to 2.5% on Wednesday. Photo / Fiona Goodall
If the economy was still “really weak” early next year, then the chance of lower interest rates looked “really likely,” he said. “It’s always hard to time the bottom of these things.”
However, Eckhold warned that an OCR below 2.5% would be “stimulatory” and would not stay at that level forever, adding that a more neutral OCR rate was between 3% and 3.15%.
Squirrel Mortgages managing adviser Nathan Miglani told OneRoof that rates needed to be 3.99% for people to start spending money again. “No one is spending money. Things are still a bit tight for a lot of people,” he said. “There’s still an underlying worry around job security.”
Miglani agreed that more interest rate cuts were likely, although his money was on one 0.25% cut now and another in February. He then expected the OCR to bottom out around February or March next year.
“That’s when people will start getting serious and fixing for a bit longer,” he said. “If one of the banks, maybe in six months, offers 3.99% for two years, then I reckon you will see a lot of people fixing for two years.”
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