PHOTO: Antonia Watson is Chief Executive Officer, ANZ Bank NZ Ltd. FILE
Considering a Six-Month Home Loan Fix: ANZ Economists Predict “Significant Falls” in Mortgage Rates
Economists from ANZ, the country’s largest bank, suggest that a six-month home loan fix might be worth considering due to anticipated significant falls in mortgage rates in the near future.
ANZ Revises House Price Growth Forecasts
ANZ has revised its house price growth forecast for this year to just 1%, down from an earlier prediction of 3%. For 2024, the bank expects house prices to increase by 4%. This update aligns with a similar adjustment from Westpac, which lowered its forecast for house price growth this year to 2.1%.
Factors Influencing the Forecast
The bank’s revised forecast comes in the wake of weaker-than-expected sales data reported by the Real Estate Institute in May. The increase in the number of properties available for sale suggests that downward pressure on prices may persist for some time, influencing ANZ’s updated predictions.
Earlier OCR Cuts Anticipated
ANZ’s economists now believe that cuts to the Official Cash Rate (OCR) might occur sooner than previously expected, potentially beginning in February. This is earlier than the Reserve Bank’s indication of a likely cut in August.
“While there are never any guarantees, confidence is growing that the peak in mortgage rates is behind us and that they will fall over the coming quarters as wholesale rates drift lower,” said ANZ’s economists. This confidence supports the idea of fixing a portion of debt for a shorter term now, with plans to re-fix once rates have decreased.
The Appeal of a Six-Month Fix
Given the expected downward trend in wholesale rates, ANZ’s economists suggest that a six-month mortgage rate fix might be advantageous. This option would allow borrowers to re-fix at potentially lower rates if the predicted decreases materialize.
“In that regard, the six-month [rate] may be a contender as it would allow you to fix again soon, but for less, if indeed mortgage rates do fall,” they noted.
Anticipated Trends in Mortgage Rates
ANZ predicts that wholesale rates will start a gradual decline in the coming months, leading to “significant falls” in mortgage rates. They expect a more meaningful reduction in rates closer to the year’s end and into 2024, contingent on the start of the easing cycle in February.
Despite the positive outlook, ANZ’s economists caution that there are risks involved, as over-optimistic rate cut expectations have had to be adjusted before.
Weighing Short-Term vs. Long-Term Fixes
Currently, there is not much difference between six-month and one-year fixed rates, with the six-month rate being slightly more expensive. However, it offers the flexibility of re-fixing sooner, which could be beneficial if rates drop quickly.
“A six-month fix will be due for renewal just before Christmas. Break-evens show that interest rates don’t need to fall too far for fixing for a shorter period to be worthwhile in the long run, even though it costs more now,” the economists explained.
ANZ forecasts a one-year rate of about 5.7% by next June.
SOURCE: 1NEWS