Interest rates are broadly expected to start dropping off in the foreseeable future.
However, a panel of experts the Herald spoke to suggested mortgage-holders should hedge their bets, as no one can be sure rate hikes are over, nor can they pinpoint exactly when the cutting will begin.
The comments were their personal views and shouldn’t be interpreted as financial advice.
Hastie Mortgages mortgage adviser Campbell Hastie recommend mortgage-holders split their loans in half, so favoured two outcomes - one where interest rates fall quickly, and one where this takes a bit longer.
“Things are inherently uncertain even if you think you know the trend,” Hastie said.
However, he said there was more competition when it came to the sorts of cashbacks on offer.
These payments to borrowers who meet the bank’s conditions could be equivalent to 0.5 to 0.9 per cent of the loan up to a cap.
Hastie said the deals were pretty attractive, but were aimed at gluing borrowers to their banks for set periods of time (for example, for three years).
Economist Tony Alexander, who regularly surveys those involved in the property sector, likewise believed borrowers should spread their risk.
Economist Tony Alexander said he wouldn’t touch longer-term rates with a barge pole. Photo / Fiona Goodall
He suggested borrowers split their loans in three - fixing for 12, 18 and 24 months.
Alexander said he wouldn’t touch longer-term rates with a barge pole, as he was fairly confident interest rates would start tracking down in 2024.
When the Reserve Bank last released its set of economic projections in August, it only penned in rate cuts for 2025. Financial markets participants are currently betting on rates coming down sooner.
The Reserve Bank will update its projections when it releases its Monetary Policy Statement on Wednesday.
Alexander noted floating rates were unlikely to fall until the OCR (official cash rate) was cut.
But fixed mortgage rates could start falling sooner.
Swap rates are closely pegged to fixed mortgage rates and have been on a downward trajectory since early October, but Alexander believed banks would hold fire for a bit before responding to this change.
He noted these rates have been volatile and banks won’t want to cut mortgage rates, only to have to hike them again.
Squirrel Mortgages chief executive David Cunningham was more critical of banks keeping rates elevated to protect their very wide margins.
With demand for mortgages weak, Cunningham said banks were relying on high margins, rather than volume, to keep their profits elevated.
He said banks hadn’t launched their usual “spring campaigns” this year, figuring they’d be better off making what they could from their customers, rather than trying to chase new clients in a subdued market.
But Cunningham was fairly confident mortgage rates would start falling in the near future.
He wouldn’t fix for longer than a year.
“The odds are so firmly in favour of rates falling,” he said, cautioning a decline in mortgage rates would likely also mean a fall in term deposit rates.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
