Longer-term mortgage rates near cycle lows
For longer-term interest rates to fall the OCR would need to dip below 3%, ANZ says in its latest Property Focus report.
Thursday, March 6th 2025, 6:00AM
by Sally Lindsay
For longer-term interest rates to fall the OCR would need to dip below 3%, ANZ says in its latest Property Focus report.
Based on its expectations of a 3% low for the OCR, the country’s biggest home loan lender thinks mortgage rates are approaching cycle lows.
History shows that for mortgage rates to move markedly below 5 % - perhaps to about 4.5% - the OCR would likely need to fall below 3%, and that isn’t what ANZ or the Reserve Bank expects.
So, barring a global crisis, ANZ says the coming months for mortgage holders will be all about choosing when to roll off floating rates onto fixed terms.
On that score, ANZ chief economist Sharon Zollner says its break evens show a mortgage holder would need to see the one-year rate fall from its current level of 5.29% to 4.84% in six months or 4.69% in a year’s time for fixing for one more short term of six-months or one-year to be better than simply taking the already-low two-year rate of 4.99%.
“In short, don’t assume; do the maths.”
However, those who are still fixed may be considering breaking their fixed term. “Doing so may result in a penalty, but if the penalty is small relative to what they believe they will stand to gain in terms of payments over the long run, it may be worthwhile,” she says.
“If a mortgage holder has something like a year to go, and that rate is perhaps 6.8% (as the two-year rate was a year ago), the cost may be prohibitive.
“But if they have three months to go their fixed term ends, and the rate is, say, 6.4% (as the six-month rate was three months ago), the penalty may be worth it to be able to fix for two years at 4.99%.
“In short, don’t assume; do the maths.”
Zollner says it is worth reiterating that it always makes sense to consider breaking up debt and spreading risk across several terms.
“It rules out getting it completely right, but it also rules out getting it completely wrong, and most people would consider that a fair exchange.
“The unexpected can happen, and Covid was a recent (and very raw) reminder of that.”
Housing market
The bank says the housing market started 2025 where it left off in 2024.
House prices lifted modestly in January; sales volumes dipped but the upward trend remains in place.
New listings surged in January and that will keep the level of stock on the market elevated and restrain house price growth in the near term.
ANZ expects momentum to build over the year ahead, with the recovery to accelerate in the second half of the year and house prices to rise 6% over the year.
“While purchasing affordability has improved, enabling a recovery, affordability remains stretched compared to history,” Zollner says.
“That’s likely to limit the extent to which house prices can outpace incomes in the medium term, provided new housing supply picks up.”
The bank is forecasting house prices to rise 5% next year, slightly outpacing income growth, before growth stabilises at 4.5% over 2027, in line with its forecast for household income growth.
| « Kiwibank, ASB lift mortgage market share, ANZ, Westpac lag | Small business lender goes prime » |
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