One-year home loan rates have dropped the most from their peak, but some of the longer-term fixes have moved by less than half the drop in the official cash rate.
ASB has released its latest Home Loan Report, which shows how home loan rates have responded to the falling interest rate environment.
The official cash rate has dropped from a peak of 5.5% to 2.5%.
Senior economist Chris Tennent-Brown said home loan rates were not solely influenced by the official cash rate.
“Fixed-term mortgages have been moving slightly lower across many maturities in between each Reserve Bank decision, including over the past month.”
Financial markets would price what was expected to happen as well as what had happened. Competition would also play a part, he said.
He said the one-year home loan rate had fallen the most from its most recent peak, with a drop of three percentage points from 7.45% to 4.49%.
Floating rates had the next biggest fall, with a drop of 2.7 percentage points. Two-year rates had dropped by 2.4 and six-month rates by 2.5.
He said short-term mortgage rates of up to one year were influenced by wholesale rates responding to OCR cuts from the middle of 2024.
“The actual Reserve Bank OCR cuts since August last year helped lower floating and some fixed rates further.
“We expect the Reserve Bank may need to reduce the OCR slightly more at the last meeting of the year in November. We currently have one more 25bp cut forecast for this meeting, then the RBNZ and market participants will be watching the data until the RBNZ meets again for the OCR decision in February. The view that there’s a bit more easing (lower OCR) to come is also reflected in the financial markets where mortgages are funded.”
That left room for short-term rates to move a little lower through the rest of this year.
Longer-term fixed mortgage rates were more influenced by what was happening offshore.
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Tennent-Brown noted that global central banks had also been cutting their policy rates.
“That has impacted global bond markets, including markets where New Zealand banks compete for funding. Longer-term NZ mortgage rates eased over 2024 to reflect the combination of the global and local outlook. Our view now is that significant falls for the longest fixed rates are less likely, especially with some of the recent developments putting upward pressure on longer-term inflation expectations.”
He said it was likely that any further declines this year would be focused on the shorter of the longer-term fixes. “The fixed terms beyond two years could stay near current levels or potentially increase.”
He said borrowers deciding on the right term to fix for should find a rate that suited their budget, including their tolerance for rates to change, their need for flexibility and desire to minimise interest rate costs.
rnz.co.nz
