The sub-5 per cent mortgage rate is back on offer with three major banks dropping their fixed term rates in the last week.

BNZ became the latest bank to cut its two year fixed term rate to 4.99 per cent yesterday following on the back of Kiwibank and ASB's special offers.

Mortgage broker Bruce Patten said the last time consumers had seen rates below 5 per cent was around two years ago.

"It's great for anyone coming off a two year rate at the moment."


And he believes it could get better still.

"I do think it will go lower."

"A lot of it is because of the way the Reserve Bank worded its announcement that there would be further cuts. The wholesale market is starting to price that in."

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On June 11 the central bank cut the cash rate from 3.5 per cent to 3.25 per cent, surprising the market which had expected the first cut to be made later this year.

Patten said depending on what the Reserve Bank did with the official cash rate and the cost of borrowing for banks all fixed term rates between one and five years could fall below 5 per cent - putting them at record lows.

"If we do see two more rate cuts we will be getting closer to Australia's cash rate. The banks there are offering 4.39 per cent for five years."

Australia's cash rate is currently 2 per cent where as New Zealand's cash rate is 3.25 per cent.


Economists are picking a further two cuts this year for New Zealand.

Westpac senior market strategist Imre Speizer expected New Zealand's cash rate to be cut to 2.75 per cent by the end of the year but said it was possible it could go to 2.5 per cent.

New Zealand's cash rate was cut to 2.5 per cent in the wake of the global financial crisis but has been steadily rising since January 2014.

Fixed rates are influenced by the cash rate but also by how much its costs banks to borrow money on the international market.

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Speizer said the main difference now compared to global financial crisis was the premium which New Zealand banks had to pay to borrow on the international market was lower.

While it was possible the two year rates could come down he doubted that would be the case for longer term five year rates.

Speizer said was because five year fixed rates were also linked to US interest rates and were unlikely to come down as US interest rates were expected to rise from September.

What to do with your mortgage?
Mortgage broker Bruce Patten said people needed to weigh up their circumstances before deciding whether to fix now for a longer timeframe or fix for six months and wait for the rates to come down.

"If you are happy with 4.99 per cent then great. But if you are prepared to wait you could see the rates come down further."

Patten said for a lot of people it was all about knowing the cost of funding their mortgage so they could budget for it.

BNZ chief economist Tony Alexander said his advice to consumers was that any three year rate under 5 per cent or any five year rate under 5.5 per cent was a good deal.