Home loan report: Keeping eyes open

Lenders have been furiously cutting mortgage rates over the past week as they anticipate a big cut in the official cash rate (OCR) next week.

Wednesday, January 21st 2009, 12:00AM

by The Landlord

Expectations are increasing that the Reserve Bank will cut the OCR on Thursday 29 January – by at least 100 basis points, to 4%, and possibly more. This follows a number of signals about the economy in New Zealand and globally which indicate that the cost of borrowing needs continue to come down hard and fast to stimulate business activity.

Economists at Westpac, who had been recommending for several weeks that borrowers start to look at fixing their mortgages for longer periods – in the expectations that rates would soon bottom out- this week changed their tune. Floating or short-term fixed rates look to be better value once more, said the Westpac commentators in their weekly briefing. They also predicted that the OCR will hit a record low of 2.5% by the middle of the year.

Floating rate mortgages are starting to nudge their way under 7% although most lenders are still charging more than 7%. Six month rates start at around 6.5%, one year rates at a touch under that and two year rates start at 6.84%.

If the more pessimistic views on the economy are borne out, borrowers will have opportunities this year to lock into some of the lowest mortgage rates seen in the New Zealand market, certainly within memory.

There are fears that rates could start to rise again quite quickly after the low point has been reached. But few market pundits expected rates to tumble as steeply as they have in recent months and the only certainty about the current climate is uncertainty.

Nevertheless borrowers should keep a close eye on the market over coming weeks and months if they have money on floating rates or due for refinancing off fixed rates. There are likely to be bargains out there, especially for borrowers who have the 20% of equity that several lenders now require.

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