Two-year home loan fixed rates drop below 6% - but should you take them?

By Susan Edmunds of RNZ

Home loan rates are now comfortably below 6% on two-year terms, which have historically been a favourite of New Zealand borrowers.

But opinions are mixed on whether they will prove a good option over the longer term.

ANZ and Westpac are offering a special rate of 5.79% for two years. ASB and BNZ are offering 5.89%, and Kiwibank 5.99%.

According to Reserve Bank data, the last time two-year rates were below 6% was in September 2022.

ANZ senior economist Chris Tennent-Brown said the home loan rates were attractive.

“Short-term rates will need to drop significantly to make it worth paying the higher floating rates or six-month rate now. Splitting rates over different terms can make sense for some borrowers too, so they have flexibility to restructure or repay, and hopefully tap into lower rates next year.”

The one-year rate would have to be about a full percentage point lower in a year’s time to make fixing for 6.35% for a year then refixing a better option than fixing for two years at 5.79%.

But Kiwibank chief economist Jarrod Kerr said there would still be significant cuts to come.

Rates would drop every time the Reserve Bank cut the official cash rate, he said.

Kiwibank expected the OCR would eventually be cut to 2.5%, and there would be a cut of 25bps at every meeting into 2026.

“More of it will be passed on as the rate cuts come. Wholesale markets are factoring in quite aggressive rate cuts – the wholesale rates are reasonably low, but mortgage rates still have a lot further to go as the Reserve Bank delivers.”

Edge Mortgages broker Glen Mcleod said he would still be careful about recommending clients to look at a two-year rate.

“If you’re looking at a 25bps cut [to the OCR] in October and 50 in November, if that’s what the Reserve Bank does, then 25 each change till mid next year, you’re well under that two-year rate and you’ve wasted money.”

But it was difficult for some borrowers who were hanging out for lower rates, Mcleod said.

“It’s a difficult time to give advice to take a higher rate because you’ll be better off when people are still screaming for reductions in rates so they can feel like they’re living again.”