Fix long-term loans now advises bank

By ELLEN READ

Borrowers wanting to lock in long-term mortgages would be well advised to move quickly as drivers from the United States suggest local lenders will increase their three- and five-year rates.

"Margins for fixed housing rates have compressed strongly and rises in rates are imminent," Bank of New Zealand chief economist Tony Alexander said in his latest weekly commentary.

While much local mortgage talk revolves around falling floating rates - courtesy of the Reserve Bank, which seems set on easing further - this is not the case for longer-term rates.

They will increase as US long-term interest rates which drive the local ones are on the rise, boosted by the belief that US economic activity will rebound.

Floating rates are 6 per cent to 7.35 per cent while five-year fixed home loans range from 6.4 per cent to 6.8 per cent.

"Chances are we have seen the lows for fixed rates this cycle and there is little reason anyone should hold off fixing," Alexander said.

He does not have a vested interest - banks actually earn higher margins on floating loans than fixed ones.

In April and May, US long-term fixed rates dipped as the Federal Reserve's Alan Greenspan raised the possibility of pushing fixed rates lower should deflation threaten the US.

These fears receded as the US economy picked up and so, too, did the historically low US fixed rates. That rebound translates to higher long-term New Zealand fixed rates.

In contrast, floating rates are expected to drop at least once more this year. Fixed rates for one to two years remained fairly stable, said ASB chief economist Anthony Byett.