Interest rates: ANZ, New Zealand’s biggest bank, tips ‘significant falls’ may be on way

ANZ has downgraded its expectations for house price growth this year. Photo / Alex Burton

By Susan Edmunds for RNZ

A six-month home loan fix could be an option worth considering, economists at the country’s biggest bank say, because “significant falls” in mortgage rates may lie ahead.

ANZ has released an update in which it downgraded its expectations for house price growth this year to 1%, from 3%. It also expects an increase of 4% next year.

It follows Westpac, which adjusted its forecast for price growth this year down to 2.1% on Tuesday.

ANZ said the weaker-than-expected sales data from the Real Estate Institute in May was among the factors that prompted it to move. The number of properties available for sale continued to increase, it said, suggesting that downward pressure on prices would continue for some time.

ANZ’s economists said they now expected official cash rate (OCR) cuts to come sooner than they previously thought. They said these cuts could now start in February, even though the Reserve Bank itself said a cut was not likely until August.

“While there are never any guarantees, confidence is growing that the peak in mortgage rates is behind us and that they will fall over coming quarters as wholesale rates drift lower. That lends itself to borrowers fixing a portion of debt for a shorter term now, with a plan to refix again once rates have fallen,” the economists said in the update.

“In that regard, the six-month [rate] may be a contender as it would allow you to fix again soon, but for less, if indeed mortgage rates do fall.”

ANZ’s economists said they expected an “emergence of a downward trend” in wholesale rates over the coming months, which would lead to “significant falls” in mortgage rates.

“Falls are likely to be more gradual at first, as we have seen year-to-date, but if our call for a February start to the easing cycle is right, falls in mortgage rates will become more meaningful as we get nearer year-end and into next year.”

They said the outlook was not without risks and economists and the market had already had to push out its over-optimistic rate-cut expectations.

There was not a lot of difference between a six-month rate and a one-year rate at present, they said.

“The six-month costs a little more, but gives the option of refixing sooner, and if rates do fall quickly, it may work out cheaper over the long term. A six-month fix will be due for renewal just before Christmas. Break-evens show that interest rates don’t need to fall too far for fixing for a shorter period to be worthwhile in the long run, even though it costs more now.”

ANZ’s forecast is for a one-year rate of about 5.7% next June.