Fixed rates on the move again
While a recent cluster of fixed rate mortgage rises is unlikely to be the start of a major trend, the outlook is still for rates to firm later this year and early next.
Monday, May 24th 1999, 12:00AM
by Paul McBeth
While a recent cluster of rates rises for fixed term mortgages isn't seen as the start of a major trend, the outlook is still for those rates to firm later this year and early next.
Late last week, a handful of mortgage lenders put up their longer term fixed rates, reversing the gradual easing that has gone on for most of 1999. Indicative of the size of the increases were BankDirect, which raised three year rates from 6.85% to 6.9% and five year rates from 7.35% to 7.50%, and WestpacTrust (three year rates up 0.2% to 7.15%, four years up 0.2% to 7.50% and the five year rates up 0.35% to 7.75%).
ASB Bank economist Rozanna Wozniak said those longer term fixed rates were being driven by what was happening in the US market, and our rates had firmed following last week's switch in the US Federal Reserve's view on interest rates.
However, she noted that the inflation outlook for the American market was still subdued.
"The risks are more up than down (for rates) and we have seen some rises. However, you wouldn't expect this to be the start of any new, dramatic trend."
Wozniak said a lot more people were switching away from fixed rate mortgages to floating rates: she estimated some 70 to 80 per cent of new borrowers early last year were opting to fix, but that percentage was more like 50 per cent at present.
"But given the interest rate outlook, there's still some logic to fixing rates for the medium to long term."
Writing in the ASB Bank quarterly housing survey, released yesterday, Wozniak says the risks for interest rate rises will increasingly turn upwards as we move into the year 2000.
She says one reason for the move away from fixed rate mortgages is that borrowers "are waiting until the tide is close to turning before making the decision to lock in for a fixed term".
However, she says opting for a floating rate, in the hope of being able to recognise the warning signs and lock in before it is too late, carries risk.
"Hence for some borrowers, in particular those not comfortable with carrying the risk of a future rise in interest rates, fixing is still an option worth considering."