Lower long-term rates predicted

Advisers and economists have predicted lower interest rates for longer, after Westpac slashed its five year fixed rate by 60 basis points.

Friday, August 17th 2018, 2:12PM

by Dan Dunkley

Westpac today became the market leader for five year fixed rate loans, cutting interest rates to 4.99 percent. The move saw the lender leap ahead of HSBC’s special offer for Premier customers.

It follows ASB's move to cut its four year fixed term interest last week to 5.35 percent.

Lenders have made their first moves after the Reserve Bank issued a cautious note on the economy last week, forecasting the OCR would not rise until 2020 at the earliest. The bank has repeatedly refused to rule out a cut, leading economists to change their forecasts and anticipate lower interest rates for longer."

Kiwibank economists revised their interest rate forecasts to a "lower for longer curve" following the Reserve Bank announcement. “We have discovered inflation to be a difficult beast to resuscitate in the post-crisis, and demographically challenged world. The realisation that the RBNZ Governor is seemingly more willing to let inflation run, led us last week to lower our OCR trajectory. Our 1-to-3 year interest rates forecasts, pegged to expectations for the OCR, were also mechanically lowered. Yet the Kiwibank economists say they expect a steeper yield curve once rates do eventually rise.

Mark Collins of Mike Pero Mortgages expects the trend towards lower long-term fixed rates to continue, as banks take the “opportunity” to entice customers away from shorter term deals. He believes banks are responding to the “certainty” of the interest rate environment. Collins said his network had not seen four-year fixed term deals for the past decade.

While long-term rates may currently look attractive to borrowers seeking certainty, Collins issued a warning: “Rates are low and tipped to stay low, but there’s no such thing as an ironclad guarantee in finance. There could be a correction, there could be further drops in the OCR – four years is a long time to be locked in.”

Tags: ASB KiwiSaver Lending Mike Pero RBNZ