According to advisers, clients are now looking towards longer-term rates
ASB has become the last major bank to drop its rates, and has announced a series of cuts of up to 20 basis points.
Notably, its three-year fixed rate has dropped from 5.35% to 5.15%. Its 18-month rate is now the most attractive, dropping from 4.99% to 4.89%.
Westpac and ANZ both announced rate cuts over the last week, and BNZ was the earliest to move by announcing a preemptive rate cut prior to the May OCR decision. BNZ’s biggest cuts were to its three-year, four-year and five-year fixed rates, with the four-year rate slashed by 30 basis points.
ASB’s general manager of personal banking Adam Boyd said that interest rates are still a “hot topic of conversation,” and homeowners and buyers are all watching the market closely.
For borrowers, advisers say that the preference is starting to shift towards the longer-term rates. Tony Mounce, director at Tony Mounce Mortgages, said that he was seeing a lot of borrowers going for six-month terms until the start of the year, but now the attention has shifted more towards 18 month and two year terms.
“Because the difference between the six month and two year terms are now quite large – around 40 basis points – the interest rate has to go down twice as much in the six months to make it worthwhile, so people are going longer,” Mounce told NZ Adviser.
“We don’t see many clients going for three years yet, but some are starting to look at it.”
The general consensus is that we’re now nearing the bottom of the rate cycle. While there are tentative forecasts of additional rate cuts in July and August, nobody is predicting any significant moves downwards – and as a result, clients are increasingly edging towards the longer-term rates to lock in the savings.
“Certainly nobody is looking at four and five year rates, and just the odd one looking at three,” Mounce said.
“I think the three year terms will become more in-vogue over the next month or two. I generally tell clients that we’re now at the fringes, and so hanging on for another 20-30 points is not worth it. A split between two rates is also quite a good strategy.”
When it comes to borrowing power, the latest cuts are looking particularly good for the first-home buyer segment. Squirrel’s David Cunningham said that lower rent inflation isn’t making first-home buyers stay put – it just means they’re able to save for a deposit faster.
Mounce added that this part of the market is definitely active, and the high-inventory environment is also tipping the scales in its favour.
“I won’t say the first home buyer market is easy – it’s never easy to buy a house,” Mounce said.
“However, for DINK (double income no kids) buyers with good KiwiSaver balances, it’s as easy as it has been in recent years to get on the ladder. The first home buyer is definitely out there looking.”
Overall, Mounce said the latest OCR cut has had a small trickle-down effect, but that this is likely the floor for now.
ASB’s latest economic note concurred with this, noting that the May decision was a “cold cut” that was “delivered with a bit of reluctance,” given the one MPC member who voted in favour of holding steady.
“We have kept – at least for now – our view that the RBNZ will cut the OCR to 2.75%, and we continue to highlight the risk of a pause or two along the way,” ASB chief economist Nick Tuffley said.
“But we will think hard about the likelihood of a pause – it has grown based on the stance of the committee and various public comments by RBNZ officials. And the fact that a large proportion of mortgages will refix shortly at much lower interest rates means the lags for OCR cuts to impact are wearing off.”
