Mortgage rates: don't wait for Bollard, says bank

Westpac economists have warned borrowers about waiting to see the 'whites of the Reserve Bank's eyes' before locking in a fixed mortgage after the latest round of rate increases saw some banks start to hike six month mortgage rates.

In their weekly commentary, Westpac's economists said it now appeared no point on the mortgage rate curve was safe and that there is a strong risk "that we could see borrowers rush to fix at whatever favourable rates are still on offer". Their full comment is included below.

A rush by borrowers to fix at low rates in March this year caused swap rates to jump and led to an increase in fixed mortgage rates as banks moved to hedge their borrowing, particularly for the two year term.

However this time around, lower variable and six-month rates than in March have meant not as many borrowers rushed to fix for longer terms at low rates, with more opting for lower variable and short term options.

Wholesale interest rates have spiked up in recent weeks as markets see the Reserve Bank raising the Official Cash Rate in the first half of 2010, as opposed to the latter part, which the RBNZ has indicated in its four previous OCR statements. Swap rates, barring one year rates, are now at their highest points this year, with the one year swap rate at its highest since mid-January.

The two year swap rate is now sitting around 4.81 per cent, its highest level since early December last year, while the ten year swap rate at 6.21 per cent is at its highest level since mid-November. Here are the comments by the Westpac economists:

Some banks have started to lift their six-month fixed mortgage rates - until now this was the only fixed term that had been left unscathed by rate increases.

Now that it appears no point on the mortgage curve is 'safe', there is a strong risk that we could see borrowers rush to fix at whatever favourable rates are still on offer.

With floating and one-year fixed rates around similar levels, there may not seem to be much advantage in fixing right now, but those who wait until they see the whites of the RBNZ's eyes before fixing are likely to face much less attractive options.

Repaying more than the minimum amount and spreading the loan over a mix of terms can help to reduce overall risk regarding uncertain future interest rate changes.


INTEREST.CO.NZ