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Are sub-2% mortgages on the way?

Mortgage rates could fall below 2% as the government and Reserve Bank move to push down borrowing costs, according to a leading fund manager.

Tuesday, June 30th 2020, 6:09AM 1 Comment

Fergus McDonald

Nikko Asset Management's head of bonds and currency Fergus McDonald believes the concerted effort to lower interest rates will lead to even cheaper mortgages in the coming months.

Measures to boost liquidity, such as the Reserve Bank's LSAP programme, will push rates down, McDonald believes.

"I still think there will be a further round of mortgage rate cuts in New Zealand," McDonald said in a webinar. "The banks are awash with cash. They can borrow as much as they want really from the Reserve Bank at 25 basis points. It wouldn't be at all surprising to me if we have mortgage rates at some stage starting with a one."

The fixed income specialist predicts small business would benefit, with many SMEs using their home equity as security for business loans. 

"That will help the SME sector, and that would flow through to small and medium sized enterprises," McDonald added. 

McDonald says long-term interest rates will be dictated by unemployment levels. Unemployment is expected to rise to up to 10%.

He does not believe negative interest rates will be required, as the domestic economy shows signs of life after Covid-19.

The asset manager's comments come as economists predict an expansion of the Reserve Bank's Large Scale Asset Purchases (LSAP) programme, beyond its current cap of $60 billion. 

The RBNZ has hinted quantitative easing is its preferred method of pushing interest rates down, by boosting liquidity.

The increased liquidity would enable banks to lend more freely, and economists believe it will lead to downward pressure on interest rates. 

Last week, Kiwibank chief economist Jarrod Kerr told TMM Online the LSAP programme could double in size. "They haven't finished with LSAP yet, far from it. We think it could double to $120 billion, and we think we will get something towards that in August." 

 

Tags: Lending Mortgage Rates Nikko AM

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Comments from our readers

On 2 July 2020 at 11:43 am akuviren@gmail.com said:
Just wait until all the economic data for the second/ third/ fourth quarter for the FY 2021 is published ! I have strong feelings to suggest we would be having a zero in front of all interest rates in 2021 or earlier if the Banks are techno ready by December 2020 as per RBNZ mandate .

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 3.19 3.19 3.49
AIA Special - 2.69 2.69 2.99
ANZ 4.44 3.15 3.25 3.85
ANZ Special - 2.65 2.75 3.35
ASB Bank 4.45 3.19 3.19 3.49
ASB Bank Special - 2.69 2.69 2.99
Bluestone 4.44 4.44 4.44 4.44
BNZ - Classic - 2.65 2.69 2.99
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.25 3.29 3.59
Lender Flt 1yr 2yr 3yr
BNZ - TotalMoney 4.55 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 4.75 4.75 -
Credit Union South 5.65 4.75 4.75 -
First Credit Union Special 5.85 3.35 3.85 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Heretaunga Building Society 4.99 4.35 4.45 -
HSBC Premier 4.49 2.60 2.65 2.80
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 3.99 2.58 2.68 2.79
Kainga Ora 4.43 3.29 3.39 3.85
Kiwibank 3.40 3.40 3.54 4.00
Kiwibank - Capped - - - -
Kiwibank - Offset - - - -
Kiwibank Special 3.40 2.65 2.79 3.25
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Lender Flt 1yr 2yr 3yr
Resimac 3.49 3.45 3.39 3.69
SBS Bank 4.54 3.29 3.19 3.49
SBS Bank Special - 2.79 2.69 2.99
The Co-operative Bank - Owner Occ 4.40 2.79 2.79 3.39
The Co-operative Bank - Standard 4.40 3.29 3.29 3.89
TSB Bank 5.34 3.59 3.49 3.79
TSB Special 4.54 ▼2.65 2.69 2.99
Wairarapa Building Society 4.99 3.75 3.99 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
Westpac Special - 2.65 2.69 2.79
Median 4.55 3.22 3.22 3.44

Last updated: 3 July 2020 8:15am

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