Home loan rates may not fall much further

Competition in the mortgage market has stepped up a notch over the past month but bank economists say rates may not fall much further, despite the announcement this week of lower-than-expected inflation in the June quarter.

Thursday, October 18th 2012, 6:49AM

Wholesale interest rates, driven down by Australia’s official interest rate cuts, are supporting lower mortgage rates. The two-year swap rate has fallen 7bps to 2.51% and the New Zealand dollar is down about 30pts to 0.8150 since the release of the June quarter inflation data.

ANZ’s latest property market report said that banks had also responded to the ANZ/National Bank merger by lowering their rates to attract customers. Several banks are now offering short-term fixed rates below 5%. ANZ moved to match them – offering 4.95% for up to a year for borrowers with more than 20% equity. (You can see and sort all the home loan rates in our table here)

“The mortgage rate curve remains ‘tick-shaped’ with the two-year rate offering the cheapest carded rate for lower levels of equity. The RBNZ is expected to remain on hold until early 2014 and we continue to see value in fixing for one to two years,” the report said.

The market is pricing in a 25 basis point OCR rate cut in their mortgage interest rates, the economists said, even though many doubted that would happen.

ASB said the 0.3% CPI increase in inflation for the June period was below expectations. “The annual rate of inflation, at 0.8%, is now below the RBNZ’s 1%-3% target band. The weakness largely owes to subdued food price inflation over the past year.”

The bank is picking the OCR will remain on hold until June 2013. Westpac said an OCR cut was a “risk scenario” rather than a likelihood.

“Of course there is always a risk that the RBNZ may feel the need to buffer the economy against global risks, in spite of an on-target inflation forecast. Our view is that the weak global environment is a good reason for keeping interest rates low, as indeed they are; we’re not sure it presents a case for taking them lower. Especially when we have a housing market that is all too receptive to the sugar-rush of lower mortgage rates.”

« NZ interest rates tipped to fall

Credit unions merge and drop fixed rates »

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