Now could be right for advisers to recommend fixed rates
ANZ’s latest Property Focus report suggested that now might be the optimal time for homeowners to secure their mortgages with longer fixed terms.
According to ANZ’s team of economists, the likelihood of significant drops in interest rates beyond current levels appears slim, with the major banks consistently offering a 4.99% rate for two-year terms.
ANZ’s insight comes at a critical juncture where previously, many New Zealand borrowers had been opting for shorter-term fixes or more costly floating rates in anticipation of falling rates, RNZ reported.
Following RBNZ’s OCR cut to 3.75%, a series of banks have reduced mortgage rates, showcasing a trend toward better customer support and competitiveness, with ANZ the first to launch a 4.99% two-year fixed rate special, quickly followed by the rest of the big four banks.
Shifting preferences in mortgage fixes
Recent trends have shown a preference for shorter fix terms or floating rates among borrowers, driven by the expectation of continuing rate declines.
Data from the last quarter indicated that one-year fixes were the most popular, making up 34% of mortgage flow, closely followed by floating rates at 32%, and six-month terms at 26%.
“That’s a lot of borrowers who chose to shorten how long they were fixed for – or moved to floating, and they are now well placed to make a decision on what to do next, either now or over coming months,” ANZ said.
Evaluating the two-year fixed rate
ANZ, which was recently reported to offer a 4.75% rate, exclusively for staff, highlighted the attractiveness of the current two-year fixed rate, emphasising its balance between providing enough certainty and flexibility without the long-term commitment that might be regretted should economic conditions shift and rates drop further.
“Not only is the two-year the low point; it strikes a good balance between being fixed for long enough to provide certainty and not being locked in for so long that you may regret it for some reason – [such as] were the economy to sour and interest rates keep falling,” the ANZ report said.
Prospects for mortgage rates
While ANZ economists foresee slight declines in mortgage rates, they cautioned that reductions in wholesale rates may not significantly impact mortgage rates due to already tight margins, RNZ reported.
This month’s figures showed a decrease in most mortgage rates, with the exception of the four-year fix, which remained unchanged. Two-year rates saw the most substantial drop, decreasing by 45 basis points.
Strategic considerations for homeowners
The ANZ report also advised homeowners to carefully evaluate whether it makes financial sense to break a fixed term early, depending on the associated break fees.
For those nearing the end of their fixed terms, the costs might be justified to secure a new two-year rate at 4.99%. ANZ also suggests that splitting loans into multiple parts with varying terms could be a prudent strategy to mitigate risks.
