Adviser dishes out tips to mortgage holders
In a move anticipated by financial markets, the Reserve Bank cut the official cash rate by 50 basis points to 3.75% this Wednesday, the lowest since October 2022, reflecting a strong response to current economic conditions.
Gareth Kiernan (pictured above left), chief forecaster at Infometrics, commented on the Reserve Bank’s recent dovish stance.
“I would expect to see some more fixed rate cuts coming through in the next week or two, particularly down the shorter end of the curve, so maybe up to two years or so,” Kiernan told RNZ.
The Reserve Bank’s adjustments in cash rate projections now align more closely with market expectations, suggesting potential for additional cuts. In a televised address, RBNZ Governor Adrian Orr indicated that the 50bp reduction might be followed by further cuts, stating, “If the economy evolves as predicted, we believe that we'll be able to lower the OCR again over the coming months.”
“And probably sort of cementing in maybe one more rate cut than the market had thought would be occurring as well, so there’s room for those [mortgage] rates to come down further,” Kiernan said.
Advice for mortgage holders
Bruce Patten (pictured above right), a Loan Market mortgage advisor, advised borrowers to evaluate several factors when considering their mortgage options.
“We need to concentrate on what’s a good rate, how long should I fix for, those are the kind of things that are going to save people money,” Patten told RNZ.
He cautioned against jumping into short-term rate deals, suggesting that the end of the rate-cutting cycle might be near.
According to Patten, banks have already factored in recent rate cuts into their mortgage pricing.
“What they’re now doing is they’re pricing in this other 50 basis points that Adrian [Reserve Bank Governor Adrian Orr] has said to get to neutral, so to get us down to 3.25 – so all they’re doing is literally pricing forward what they expect to see in the next few months.”
Longer vs. shorter term rates
Patten said that while three to five-year fixed term loans are influenced more by wholesale bank rates than the OCR, these rates could rise if inflation increases or due to external factors like tariffs in the US.
“If you want a longer-term rate you should be thinking about that in the next two to three months absolute maximum – if everybody starts going for those longer term rates they will start to creep up,” he said.
For those comfortable with shorter terms, up to two years, Patten suggested there is leeway to wait and benefit from potential further reductions in the OCR through mid-year.
Managing mortgage risk
For those unsure about the best path forward, Patten recommended a balanced approach.
“It’s just about splitting your risk somewhat,” he said.
Patten suggested considering splitting the mortgage, placing half on a short-term basis, ideally no longer than six months, and the other half on a two to four-year fixed term, depending on individual circumstances, RNZ reported.
