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Long-term mortgages becoming more attractive

Fixing long-term home loans could be a more attractive strategy for borrowers as the Reserve Bank plans sharp rate hikes, according to a new report.

Tuesday, August 10th 2021, 1:15PM 2 Comments

ASB's latest home loan rate report points out that while fixing short-term loans has been a good strategy in recent years, "this approach is now undermined by the prospect of a swift lift in the OCR and mortgage rates".

"Our expectation that the RBNZ will lift the OCR several times in succession influences our mortgage forecasts and our thoughts regarding the various strategies for borrowers," the team said.

With the Reserve Bank expected to lift the official cash rate at the next three meetings, economists at the big four bank suggest a longer-term approach could prove more prudent. 

"Fixing for some of the longer terms provides interest rate certainty for the next few years at a slightly higher cost than the cheapest rates," economist Chris Tennent-Brown said. "For those who want this longer-term interest rate certainty now, the cost of fixing for two to five years is still very low compared to the past twenty years."

How high will rates get?

As economists believe we have passed the trough of the current market cycle, ASB's team provided a forecast for how high rates will go in their latest Home Loan Rate Report. 

"Based on the ASB economics team’s expectation that the OCR will peak 1.25% higher than current levels (at 1.5%), and our assumptions about bank funding costs and inflation forecasts, we expect mortgage interest rates will lift to levels around 1-2% higher than they are now over the next few years. However, as is often the case, the outlook is far from certain.

"Borrowers will be pleased to know we still expect mortgage interest rates to eventually settle over the next decade at levels well below the long-run averages of the past 20 years. And borrowers can lock in incredibly low longer-term interest rates (between 2.95%-3.99% at the time of writing) if interest rate certainty over a longer period is of the utmost importance."

Tags: ASB home loans Lending Mortgage Rates mortgage terms

« Outside odds of 50 basis point rate hikeASB profit up 40% as home lending soars »

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Comments from our readers

On 10 August 2021 at 8:04 pm Amused said:
"Fixing for some of the longer terms provides interest rate certainty for the next few years at a slightly higher cost than the cheapest rates," economist Chris Tennent-Brown said.

Gosh whoever would have thought that. So glad that we have bank economists able to provide us with these pearls of wisdom.
On 12 August 2021 at 12:55 pm Veteran Charles said:
Dear Amused - thank you for making that comment - it has to be said. Normally nothing is said and I start to think that I must be the only one that sees it., either that or I am crazy.

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 2.85 3.25 3.55
ANZ 4.44 3.20 3.59 4.00
ANZ Blueprint to Build 1.68 - - -
ANZ Special - 2.60 2.99 3.40
ASB Back My Build 1.79 - - -
ASB Bank 4.45 2.85 3.25 3.55
Basecorp Finance 5.49 - - -
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - 2.85 3.25 3.55
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 4.55 3.45 3.85 4.15
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland Bank - Online 2.25 1.85 2.35 2.65
Heretaunga Building Society 4.99 3.80 3.90 -
Lender Flt 1yr 2yr 3yr
HSBC Premier 4.49 2.19 2.45 2.69
HSBC Premier LVR > 80% - - - -
HSBC Special - 2.25 - -
ICBC 3.69 ▲2.45 ▲2.85 ▲3.15
Kainga Ora 4.43 2.88 3.28 3.59
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.75 ▲3.80 ▲4.00 4.34
Kiwibank - Offset 3.75 - - -
Kiwibank Special 3.75 ▲2.95 ▲3.15 3.49
Liberty 5.69 - - -
Nelson Building Society 4.95 2.99 3.24 -
Lender Flt 1yr 2yr 3yr
Pepper Essential 4.79 - - -
Resimac 3.39 2.98 2.79 3.29
SBS Bank 4.54 2.99 3.39 3.59
SBS Bank Special - 2.49 2.89 3.09
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - ▲2.65 - -
The Co-operative Bank - Owner Occ 4.40 ▲2.85 ▲3.25 ▲3.49
The Co-operative Bank - Standard 4.40 ▲3.35 ▲3.75 ▲3.99
TSB Bank 5.34 3.35 3.75 4.05
TSB Special 4.54 2.55 2.95 3.25
Wairarapa Building Society 4.99 3.55 3.49 -
Lender Flt 1yr 2yr 3yr
Westpac 4.59 3.45 3.85 4.09
Westpac - Offset 4.59 - - -
Westpac Special - 2.85 3.25 3.49
Median 4.54 2.95 3.25 3.49

Last updated: 28 September 2021 9:12am

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