Homeowners are being urged to fix their mortgages now to make the most of record-low interest rates - which experts say are at rock bottom.

All the major banks slashed their floating and variable loan rates yesterday after the Reserve Bank announced a cut to the official cash rate (OCR).

It fell from 2.75 per cent to 2.5 per cent, equalling the lowest cash rate New Zealand has seen.

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ANZ, ASB, Westpac, BNZ and Kiwibank all responded by cutting their floating rates. Kiwibank undercut the others to offer 5.65 per cent.

Westpac was the only bank to cut a fixed-term rate, slicing 15 basis points off its two-year special to 4.24 per cent.

BNZ director of retail and marketing Craig Herbison said homeowners stood to miss out on years of savings if they didn't take advantage of the lower rates, which had likely reached their plateau.

He was dismayed more didn't seem to be taking advantage of the potential savings. Dependent on what type of loan they had, homeowners stood to save thousands of dollars and cut their mortgage term by years.

"More than 60 per cent of home owners confess they're doing nothing about paying off their home loan faster. If the current rate environment isn't motivation enough, I don't know what is."

Loan Market mortgage adviser Bruce Patten said further cuts to the cash rate were unlikely and now was the time to fix.

"The message from the Reserve Bank was, 'Don't expect a cut next year'. Our advice to people in the last few weeks has been, 'If you want certainty, now is the right time to fix'."

However economists at Westpac and ASB expect the rate to be cut two more times in 2016 taking it to a new record low of 2 per cent.


Fixed rates have fallen dramatically over the past year, with rates below 5 per cent now the norm for one- and two-year fixed-term mortgages. SBS Bank has the lowest one-year fixed rate, 3.99 per cent.

Mr Patten said the last time a one-year rate that low was available in New Zealand was in 1947 and he believed interest rates were now at their lowest point in the current cycle.

Homeowners should be looking to fix their mortgages for two or three years, he said. Rates for those terms were between 4.2 and 4.5 per cent a year - a big saving for people who might have fixed for one year 12 months ago, when one-year rates were around 6 per cent.

A homeowner with a $400,000 mortgage taken over 30 years could potentially save $372 a month, or $4464 a year, by fixing at 4.5 per cent, compared to 6 per cent.

Mr Patten also urged people to act sooner rather than later because of uncertainty around what would happen at next week's US Federal Reserve announcement.

The Fed is expected to increase the cash rate for the first time in nine years on Thursday, which could have a flow-on effect to New Zealand banks and longer-term fixed mortgage rates.

Mr Patten did not expect any significant impact on longer-term rates.

For homeowners who have already fixed their mortgage, one way to get a lower rate is to break the current fixed term and either switch to another bank or stay with the bank at a lower rate. However, when the OCR falls, the cost of breaking the fixed term on a mortgage increases.

For those yet to buy, the latest drop in the OCR may not have a huge impact on Auckland's red-hot property prices, Property Institute chief executive Ashley Church said.

"[If the OCR had dropped] six months ago people would have been prepared to spend more ... people would have been more comfortable about going into the market to buy."

But he said October's changes aimed at curbing the investor market had reduced market competition and also made locals more nervous.

Meanwhile, issues driving the property market, like the lack of supply, remained. Figures released yesterday by the Real Estate Institute show the median Auckland house price jumped $95,000 in the past year and $16,750 since October.