Here’s a question that I’ve had multiple times per day for the last 16 years: ‘what’s going to happen with mortgage rates?’
It’s a question I’ve always answered with a huge disclaimer – anyone who says they can read the future is full of it!
But I try anyway.. Right now it’s harder than any other time in my almost 25 year finance career to try predict what might happen with rates. Fixed rates in particular.
Floating rates are relatively easy to forecast as they are closely aligned to the Official Cash Rate (OCR) set by the Reserve Bank of NZ (RBNZ). Floating rates are typically funded by domestic NZ money. When the RBNZ moves the OCR up or down, typically you see mortgage floating rates move by the same change in the OCR.
The next OCR announcement by the RBNZ is at 2pm on 28th May. Most pundits are expecting a 0.25% cut, so floating rates will likely come down by around 0.25% at that point. There’s an outside chance of a 0.50% cut, but not that likely.
Fixed rates are a different beast. There’s not enough domestic money in NZ (in savings accounts, term deposits etc) to satisfy the demand for all the mortgages so the banks head offshore to fund a proportion of the fixed rate mortgage loans. The banks borrow from all over, but often from US banks, and that means that when trying to predict future fixed rate movements we have to factor in what’s happening in world economies and in particular the US economy.
That’s a tough read at the best of times. But at the moment it’s a whole lot tougher as the US has a highly unpredictable President. Major unexpected announcements are being made constantly, then reversed, no one can pick what’s going to happen next. That means that the money markets are struggling to predict what might happen to the cost of money in the US which in turn means the funding cost of our NZ fixed rate mortgages are highly uncertain.
With the upcoming OCR announcement, I’m thinking that if we get a 0.25% cut we won’t see much movement on the fixed rates as the NZ banks have likely already factored that into todays rates. In the case of a 0.50% cut, we would see some downward movement in fixed rates, probably limited to 0.25%.
It’s likely to be a turbulent few years ahead. So when considering how long to fix for, think about what’s important to you. Is it having some payment security over a highly unpredictable time? Or is it trying to play the game to get lowest possible rates by going short. Perhaps a combo?
For mortgage advice tailored to your risk profile and situation, speak to the team at Loan Market Coast to Coast.
