- Westpac reduced its special five-year mortgage rate to 4.99%, with other banks expected to follow.
- Economist Tony Alexander suggests 4.99% is a good rate for conservative borrowers to lock in.
- Mortgage brokers advise waiting, expecting further rate drops and highlight potential risks of long-term fixes.
A five-year mortgage rate of 4.99% could be “as low as it goes” and is worth considering for those wanting to set and forget, according to a leading economics commentator.
Start your property search
Westpac reduced its five-year special rate to 4.99% ahead of the Official Cash Rate dropping to 2.5% this week, and other banks are expected to follow suit.
Tony Alexander said that for conservative borrowers like himself, 4.99% was a good rate to lock in for five years.
The former BNZ chief economist wrote in his OneRoof column this week: “If I were borrowing at the moment, I would personally be quite happy to fix five years just below 5%.”
Back in 2021, Alexander encouraged Kiwis to take advantage of the 2.99% five-year rate that banks were offering. Those who did avoided the crunch of rising interest rates and saved tens of thousands of dollars.
Alexander admits he didn't know sharp interest rate rises were just around the corner, but he did think that the offer was too good to miss, concluding that the Covid era of super-low rates would come to an end at some point.
Similarly, he thinks current mortgage rates are at or near their trough point.
“The longer-term rates reflect expectations of what happens over the next five years, not the next few months,” he told OneRoof after Wednesday's OCR decision.
He said the Reserve Bank had a tendency to ease too much for too long, but then make “crunching interest rate rises” to get inflation under control.
Discover more:
- Tony Alexander: What the OCR drop means for mortgages and house prices
- Auckland's most expensive home: Arney Road mansion sells for circa $40m
- Revealed: What went down after comedian Mike King sold his house
Alexander said that spreading the risk - fixing half your mortgage at a shorter term and half at a longer term - was “probably a good idea most of the time”.
“The world we live in is increasingly uncertain - there are shocks all over the place. People shouldn’t always assume the shocks are going to be negative for growth and cause a lowering of interest rates. At some stage, we will get shocks in the other direction – no idea when.”
GV Financial financial adviser Gareth Veale felt that there was still room for the five-year rate to fall further. “I don’t think the time to lock in a long-term rate is quite just yet. We are not at the end of the easing cycle.”
Veale said it was likely that the one-year rate would drop to 3.99%, which meant people who locked in for five years now could be paying an extra 1% more than they had to. Five years was a long time, he said.
Westpac has lowered its special five-year rate to below 5%. Photo / Fiona Goodall
“There are unattended consequences of locking in for longer. When you lock in for longer, you are held to that lender for a longer period of time.”
Squirrel Mortgages managing adviser Nathan Miglani is also advising clients to wait until February or March before fixing for longer. “The old saying was anything under sub 5% is a good rate, but the new saying is anything under sub 4% is a good rate,” he said.
He wouldn’t advise anyone to fix their mortgage for more than three years because of the risk of having to break if plans changed. “The biggest breakage cost I’ve seen in my career is $34,000, and I’m always mindful of advising people of fixing for way too long if they are not sure what they are going to do in the next couple of years.”
People with mortgages of less than $350,000 should opt for a short fix, while those with bigger mortgages, over $500,000, should hedge their bets and split their mortgage terms.
However, he would be encouraging clients to lock in a two-year interest rate of 4.49% if it becomes available.
Tella mortgages chief executive Andrew Chambers thought interest rates would continue to fall. “There were quite aggressive drops before yesterday, which was potentially the banks looking at what was coming, so in terms of that longer end of the curve it may not happen until November. I think it will happen, though.”
Chambers thought the remaining big banks would follow Westpac and offer a five-year interest rate of 4.99%, but he didn't think now was the time to lock in for years. “I think one year is safer, or keeping it in that shorter term. We kind of know there’s another 25bp cut drop to come this year, so I think everyone is sort of expecting to see the rates across the band come back in the run-up to Christmas.”
- Click here to find properties for sale
