A ceasefire in Iran is unlikely to bring any relief for home loan borrowers. Photo / RNZ, Quin Tauetau
By Susan Edmunds of RNZ
A ceasefire in Iran is unlikely to bring any relief for home-loan borrowers.
Wholesale rates have been pushing higher on the expectation interest rates might need to rise to combat inflation caused by the Middle East conflict.
But in recent days, there had been a pullback, before rates then ticked up again.
Reserve Bank data showed an average two-year special home-loan rate was now above 5%, having dropped to a low of 4.5% towards the end of last year.
The Reserve Bank opted to hold the official cash rate at 2.25% on Wednesday, but indicated it was watching the path for inflation and would act if there seemed to be any wider effects on things such as medium-term inflation expectations.
Infometrics chief forecaster Gareth Kiernan said he did not think any falls in wholesale markets recently had been significant enough to affect mortgage rates.
“At best, the moderation in swap rates since March 23 probably just helps remove upward pressure that might otherwise have continued to push mortgage rates higher.
“Financial markets have a fairly proactive Reserve Bank tightening profile priced in. And these are reflected in the pricing of mortgages.”
Westpac chief economist Kelly Eckhold said he expected mortgage rates to rise through this year as the time of likely official cash rate increases drew nearer.
Westpac now expects the first OCR increase to happen in September, rather than December, as it previously forecast.
“That likely means mortgage rates heading from the mid 4%s to low 5%s, to the 5.5% to 6% range if we assume margins continue as we have seen of late.
“If the Reserve Bank surprises markets by moving rates up more quickly than priced, then mortgage rates might rise a little more quickly but perhaps to a similar ultimate level unless markets conclude the OCR needs to rise significantly above 4% at some point.”
Squirrel chief executive David Cunningham said it was interesting that New Zealand’s yield curve had significant interest rate increases built in, while other countries did not.
“I think it’s that our markets swing quite wildly … it’s all about easing or all about tightening and if it’s going to be tightening, it’s going to be a massive tightening and so on.
“I think there’s more subtlety than the yield curve builds in, but you’ve just got to be patient through it.
“We’ve had the swing in sentiment from four months ago, where the last interest rate cuts were off the table and so therefore the next move was up, and so wholesale interest rates adjusted to that view and are predicting interest rates at 3.5% in June next year.
“That’s flowed through to wholesale interest rates, swap curves, which drives the fixed interest rates. You’ve got three-year rates well above 5% now from a low of nearer 4.5%.”
He said people might think taking short-term fixes made sense because if interest rates did not rise as fast as expected, they could prove a cheaper option.
“You’re paying quite a premium to go into long-term rates at the moment for the certainty they provide. My overarching observation is New Zealand’s market is swinging more violently than markets elsewhere in the world from an interest rate perspective, and we’ve already got quite a bit of rise in interest rates built in, and so that’s what you’re paying for our fixed rates.”
He said when he fixed recently he chose two- and three-year terms, but would now choose a shorter term.
“If you can cope with the uncertainty that’s probably a fair deal and, you know, see where things are in six months, 12 months’ time. But every situation is different. For some people, the certainty is more important.
“At the end of the day, the last half-percent doesn’t profoundly change your life too much. It’s the 2%, 3% moves that do. I don’t think we’re going to see any of those sort of magnitude moves in the near term.”