Sub-2% rates for two to three years: economists

Mortgage rates under 2% could be in place for two to three years if the Reserve Bank opts for a negative official cash rate and term lending facility, according to economists.

Monday, August 31st 2020, 9:20AM

ASB's latest mortgage rate report suggests that Reserve Bank action to lower rates in the wake of the Covid-19 pandemic will push down home loans for several years, good news for first home buyers, owner-occupiers, and investors.

The RBNZ's Funding for Lending programme, complemented with a negative OCR, will make it significantly cheaper for retail banks to lend. 

Economists believe the plan, if implemented, will lead to a lower-for-longer outlook on home loans.

"Our forecasts suggest that some fixed term mortgage interest rates could dip below 2% over the year ahead, and all fixed terms should stay below current levels for the next two or three years," the new report says. 

"Floating mortgage interest rates are also forecast to decline but will remain significantly higher than fixed-term mortgage interest rates for most tenors," the economists, including Chris Tennent-Brown, added. 

The economists said that while mortgage interest rates look set to stay "extremely low over the next several years", borrowers must plan ahead for an eventual rate rise. 

"Borrowers are prudent to plan to deal with higher interest rate costs over the long run, rather than budget on rates remaining this low indefinitely."

 

 

Tags: ASB

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