by Jenny Ruth
"The way the wholesale curve is priced, it’s already got some pretty swift upwards moves in the (Reserve Bank’s official) cash rate (OCR) and a peak at 6% built in," says economist Nick Tuffley.
The OCR is currently 5%. The wholesale market is also currently expecting the OCR to stay at 6% for some time, he says.
Tuffley thinks the Reserve Bank should sit back and wait before raising the OCR but also thinks the bank won’t heed such advice and may raise the OCR as early as December 4 when it delivers its latest monetary policy statement.
While fixing mortgage rates for longer terms will still provide the security of knowing your interest rate won’t change, "you’re back to paying a relatively high price for it," he says.
Westpac’s six months and one year fixed loans are currently well below its floating rate at 6.65% and 6.9% respectively. It also has a non-standard 30-month rate of 6.99%, the result of it purchasing forward cover in the wholesale market.
Confusing the picture for some with large mortgages is the fact that they can often negotiate up to half a percentage point off the floating rate.
But its other rates are considerably higher, ranging from 7.4% for a two-year fixed rate mortgage to 7.75% for a five-year mortgage. Back in June and July, the five-year rate was just 6.5%.
Most people are likely to find themselves paying a lower average mortgage rate over a five-year period if they fix for a shorter time and then roll over to whatever is available at maturity, Tuffley says.
Although perhaps longer than six months might be wise: "Six months might be cheap now, but what’s it going to be when you roll off that?"
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