Westpac chief economist Dominick Stephens says there are only “limited downsides” to fixing a mortgage now.
By Susan Edmunds
Westpac has advised that now is the time to fix – after months of saying floating was the better option.
Stephens said there were several reasons for the bank’s belief that now was the time to fix. “We’ve got through the Greek election without Eurogeddon, the retail mortgage rates have fallen and the wholesale rates have risen.”
He said the balance of risks favoured fixing as a way to cut the lifetime interest rate cost of a mortgage.
Stephens said one- to three-year terms were particularly attractive. “Fixed rates are lower than floating in some cases. You can knock down your principal much faster on a fixed rate.”
ANZ agreed now was a good time to switch to a one-year mortgage rate.
Its latest Property Focus report said there was a strong case for having at least part of a mortgage on a one-year fixed rate. "Clearly there are savings to be had if one elects to fix... If like us, you believe the OCR is unlikely to be cut, the it would pay to consider doing so."
ANZ said borrowers would be better off fixing today for two years at 5.49% than fixing for one year at 5.35% if the one-year rate in a year's time ended up being above 5.73%. "The question you have to ask if how likely is it that the one-year rate will be above 5.73% in a year's time without a big jump in the OCR? We think it rather unlikely."
ANZ chief economist Cameron Bagrie said 10% interest rates were likely a thing of the past.
The report said the OCR was likely to peak at lower rates in future. "Of all the theses we have developed since the GFC, one of the strongest is that the interest rate cycle will be more muted going forward and the OCR will peak at a much lower level than it has in the past."
It said there was a partnership emerging between the Reserve Bank and the country's borrowers. "The more people stay on floating, the more impact OCR increases will have and the less active the RBNZ needs to be."
Bagrie said when interest rates started to rise again, they would drift up rather than skyrocket. The OCR is widely tipped to stay at its current levels at least until next year.
"It's a completely different kettle of fish looking forward than what we've been used to for the past 10 years."
The ANZ report suggested splitting home loans between fixed and floating terms.
A possible driver for another cut in the OCR is tumoil in Europe. But both ANZ and Westpac said that would not necessarily translate into cheaper borrowing.
"It is worth noting that even if things did get really ugly in Europe and the RBNZ did cut rates, we may not necessarily see mortgage rates fall, as this would also likely beaccompanied by a substantial rise in bank funding costs as markets seize up."