This depends on "affordability," mortgage adviser says
With the future of mortgage rates uncertain, Kiwis are being advised to consider what they can afford when locking in a fixed term.
The advice comes following the latest OCR hike by the Reserve Bank of New Zealand by a further 50 basis points and with interest rates increasing at several major banks over the last month.
Bruce Patten, Loan Market mortgage adviser, said no one truly knew how high rates could go and how long people locked in their mortgage depended on “affordability,” RNZ reported.
Read more: Mortgage holders face more mortgage pain as interest rates rise – ANZ
For homeowners who could afford the higher rates, some were looking at locking in for 18 months, in case rates come down, Patten said; while those who didn’t have “affordability” but were able to budget for the current rates tend to look “longer-term” and fix for two to three years, giving them “consistency” in knowing what they’ll pay.
There had also been a “big call” for splitting mortgages across terms to spread the risk, Patten noted.
Read next: Mortgage broker to borrowers: Spread the risk
Splitting the mortgage term was beneficial because if rates fell, borrowers would be able to move to lower rates sooner but their whole loan would not be impacted if rates increased, he said.
Patten is expecting inflation to start to abate in 2024, and interest rates may then start to come down.
John Bolton, Squirrel founder, believed that fixed interest rates “have largely peaked.”
“We’re still fixing customers largely for a year,” Bolton said.
But he was urging clients to lock into slightly longer periods such as two years, if they could not afford rate rises.
Bolton said the main thing with mortgages was “making sure that you can afford it.”
Many people were still on low rates and were having to adjust to a much higher rate environment, he said.
Many would be making the switch from 3.5% to 6% in the first quarter of next year, which Bolton said would be “a significant increase in fortnightly or monthly repayments.”
“There's a bit of a belt tightening to come post-Christmas,” he told RNZ.
