‘Expect sub-5% home loan rates’: Mortgage expert

Some buyers of median-priced houses with a 20% deposit have probably already seen a significant drop in interest payments. Photo / John Weekes

By Susan Edmunds of RNZ

Home loan borrowers should see rates below 5% before too long, one mortgage expert says.

The Official Cash Rate (OCR) is expected to be lowered by another 50 basis points in February, and further cuts are predicted later in the year.

Wholesale rates have fallen since the last OCR cut, and the two-year swap rate is down 20 basis points from the time of the last gross domestic product release, which showed New Zealand had been in another recession.

David Cunningham, chief executive of mortgage broking firm Squirrel, said it meant there was at least 20 basis points to come off home loan rates “almost immediately”.

“Further, I think there is potential for mortgage rates to fall by about 0.5% in the next month or so, even without OCR changes,” Cunningham said.

“That’s because banks are still paying 5% for six-month term deposits versus a wholesale rate for six months of 3.8%. I think those term deposits will drift down to 4.5%, enabling home loan rate cuts. Sub-5% is on the horizon.”

At present, the lowest advertised rate from the big five lenders is 5.49% for three years, offered by both ASB and Westpac.

Economist Shamubeel Eaqub said he would expect home loan rates to move with swap or wholesale rates.

“Although I would note the decrease in recent weeks have been on a small scale,” Eaqub said.

Two-year swap rates have fallen from a peak of 5.79% in October 2023 to just over 3.4%.

The one-year rate has fallen from 5.69% in February last year to just over 3.5%.

Some of that is the effect of markets pricing in what they expect to happen.

Late last year, BNZ chief economist Mike Jones said home loan rates had fallen further than the OCR so far, in part because wholesale markets were already reflecting the cuts forecast to come.

Jones said someone buying a median-priced house with a 20% deposit would be paying about $9000 a year less in interest than they were at the start of the year.

He said 51% of all mortgage borrowers would have their mortgages reset over the first half of this year.

– RNZ