This despite predictions that home loan interest rates will push higher than previously forecast
Home loan interest rates are predicted to rise further than previously forecast, but borrowers may now have the opportunity to lock in “surprisingly low” rates.
The June quarter saw New Zealand’s GDP rise 1.7%, more than many economists had predicted. At the same time, inflation in the US remained higher than some had expected.
That led some economists to predict that the Reserve Bank may need to further increase the OCR, which is currently at 3%, to put inflation under control, with ANZ now expecting a peak of 4.75%, instead of 4%, and others revising their prediction up to 4.25%, Stuff reported.
Read more: ANZ makes big changes to its OCR forecast
The last time the OCR was near 4.75%, the average floating rate for new home loan borrowers sat at 7.88% while the average one-year rate was 6.89%. In comparison, big banks are currently charging between 6.5% and 6.85% for floating loans and 5.15% to 5.75% for one-year terms.
Chris Tennent-Brown, ASB senior economist, said the interest rate market was “swinging around a bit.”
Tennent-Brown said he had been surprised at how high interest rates got in June and July as well as at how low rates dropped when worries of a looming recession increased.
“Our forecast is somewhere in the middle,” he said.
Read next: Inflation could return to targeted levels by mid-2024
Tennent-Brown said that for people who were concerned that inflation could become a longer-term problem, there were opportunities to lock in interest rates at historically low levels. He said it was likely that floating rates would get near 8%, and six-month, four-year, and five-year terms could get up to 7%.
“The four- and five-year rates were actually at these levels in June, before we got the July dip,” Tennent-Brown told Stuff. “We think that dip will reverse – wholesale rates already have – and the longer-term mortgage rates will head back to those levels. The expected OCR increases will push up the shorter terms over the coming months too. The mortgage curve normally has that Nike tick shape, with the one- and two-year rates being the lowest, and we expect that to continue.”
Gareth Kiernan, Infometrics chief forecaster, is expecting more upward pressure on mortgage rates over the next six to nine months.
“Retail rates look surprisingly low at the moment, and we see a real chance that the lowest available rate pushes up towards 6.3% in the first half of next year,” Kiernan told Stuff. “If ANZ’s forecast of a 4.75% OCR is correct, then that peak in one and two-year mortgage rates could be up at 6.7%. Interest rates that high would have significant negative repercussions for the housing market, household spending, and broader economic growth, so the Reserve Bank will be hoping that there is some evidence that they are starting to bring inflation under control by early next year, thereby enabling them to justify not lifting interest rates beyond the first quarter of the year, and forestalling the need to drive the economy into a major recession.”
In the first half of last year, banks were using test rates of 6.2%, so if the rate reached 6.7%, some of last year’s buyer would face a “considerable risk of default,” he said.
“[They] might be unable to meet their increased repayments, leading to a wave of mortgagee sales and larger and more prolonged downward pressure on house prices,” Kiernan said.
Miles Workman, ANZ senior economist, said any changes to the OCR would likely be fully passed through to floating rates, but fixed-term rates might move less, because the market had already priced in a peak OCR above 4%, Stuff reported.
