Here's a mortgage rate to think about…
Home loan borrowers looking for the best mortgage deal may find it in a longer-term fix, ANZ’s economists have suggested.
Read more: Borrowers may have opportunity to lock in "surprisingly low" interest rates – economist
According to ANZ’s latest mortgage rate calculations, the average one-year home loan rate needs to increase to 5.9% in a year’s time to make it cheaper to fix for two years at 5.64%, rather than taking a one-year rate of 5.38% and refixing in a year.
“If we are right and the official cash rate needs to go to 4.75%, or beyond, it’s easy to envisage the one-year going above 6%,” David Croy, ANZ senior strategist, told Stuff.
The step up to fixing for three years, at 5.81%, is also quite small, Croy said.
“The extra certainty longer fixes offer may appeal to some borrowers, especially if those rates are still affordable, and capacity to withstand a surprise upward jump in interest rates is limited,” he said.
With the market experiencing “a bit of a shift,” Croy said borrowers should consider a longer-term fix.
He said there would likely be a second wave of interest rate hikes, as central banks around the world continue to combat persistent inflation, Stuff reported.
“We’ve spent a good part of the year thinking about where we might have the top of the cash rate,” Croy said. “It’s been pushed further and further out. Forecasters’ expectations of where the OCR is going keeps getting pushed higher.”
While it was easy to imagine rates passing 6% early next year, it was possible to fix beyond that at a cheaper rate, he said.
The biggest changes in the mortgage market in the last month, Croy noted, had been the “rebound” in shorter-term fixed rates.
“Floating rates are unchanged, but the average one-year rate now stands at 5.38%, which is a new high for the cycle,” he said. That isn’t much higher than where we recorded it in July (on average across the big four banks), but as noted, it is a new high.
“It comes after an offshore-led breather in wholesale rates saw mortgage rates drop for a time, as markets contemplated global recession risks and concluded that central banks accordingly might ‘blink’ and stop hiking policy rates.
“However, inflation has proven to be stickier than many expected, and central banks across the global have made it clear that they will be guided by where inflation is heading, rather than where growth is heading. Among other things, that suggests that policy rates will remain elevated, even if growth slows.”
