What is happening to mortgage interest rates?
NZ interest rates largely unchanged from this time last year. But the consensus is that we expect longer-term interest rates to move higher this year as US interest rates lift.
Currently, the 1 year and 2 year interest rates seem to offer good value but there is always a risk that in two years time the interest rate will be significantly higher. ANZ believes the one year rate offers the most value too.
The trade off is to fix a mortgage for 5 years which is around 5.85% to 6% depending on your bank. People who place a high premium on certainty and stability may want to consider fixing a portion of their loan for longer terms.
Currently the OCR has not moved up. ASB forecasted the OCR to remain on hold till August 2019, about six months later than they previously anticipated.
Although interest rates may still be near all time lows, what we do see is tightening credit lending standards. This means marginal borrowers are being squeezed out of lending market. Banks are choosing not to take on risky borrowers and prefer to lend money only to those with strong credit.
For those who are still standing on the sidelines and not sure whether to buy a house, ANZ suggest another possibility: Despite rising construction and land costs, high existing house prices have made building attractive relative to buying. How the mechanics of the loan actually works out and how much a bank is willing to lend will depend on your specific circumstances.
All up, as the OCR is a major factor influencing floating and shorter-term fixed mortgage rates, if OCR stays on hold until next year we are likely to see a period of stability for these mortgage interest rates until next June.
After that, interest rates could move up gradually at least 1% point because bank funding costs are likely to rise as the Federal Reserve hikes the interest rate.