ANZ's Property Focus report notes that its economists generally agree rates might not drop much lower. Photo: RNZ / Nate McKinnon
The time has "basically come" - or is close - to fix your home loan for longer, ANZ's economists say.
The country's biggest bank has released its latest Property Focus report, which notes that its economists generally agree that rates might not drop much lower than their current levels.
The main banks are all offering 4.99 percent for two years.
There had been a strong focus by New Zealand borrowers in recent times on either fixing for short terms or even more expensive floating, because people expected rates to keep falling.
In the last three months of last year the most popular choice was a one-year fix, which accounted for 34 percent of mortgage flow, followed by floating at 32 percent, followed by six-months, at 26 percent.
"That's a lot of borrowers who chose to shorten how long they were fixed for - or moved to floating, and they are now well placed to make a decision on what to do next, either now or over coming months," ANZ said.
It said it could see merit in fixing for two years at the current rate levels.
"Not only is the two-year the low point; it strikes a good balance between being fixed for long enough to provide certainty and not being locked in for so long that you may regret it for some reason - [such as] were the economy to sour and interest rates keep falling.
"Based on our wholesale interest rate forecasts, we are projecting small further falls in mortgage rates, but we would note that margins are at the tight end of historic ranges, and as such, falls in wholesale rates from here may not have as much of an impact on mortgage rates."
All mortgage rates were lower this month than last, with the exception of a four-year fix, which was the same, it said.
Floating rates and two-year rates had fallen the most, by 50 basis points and 45 basis points respectively.
ANZ's economists said while they wrote last month that they could see merit in extending a fixed-term soon, "that time has basically come - or is at least close".
They warned there could be risks and things might not progress as expected.
"There is no shortage of uncertainty. But based on our expectation of a 3 percent low for the OCR, we think one- to three-year mortgage rates are approaching cycle lows.
"History shows that for mortgage rates to move markedly below 5 percent (perhaps to around 4.5 percent), the OCR would likely need to fall below 3 percent, and that isn't what we or the Reserve Bank expect."
The one-year rate would need to fall to 4.84 percent in six months or 4.69 percent in a year's time to make it worth fixing for six months or a year rather than taking the current two-year rate.
Whether it was worth breaking a fixed term and refixing would depend on the break fee associated with the move, they said.
"If you have something like a year to go, and that rate is perhaps 6.8 percent - as the two-year rate was a year ago, the cost may be prohibitive. But if you only have three months to go before your fixed term ends, and the rate is, say, 6.4 percent- (as the six-month rate was three months ago, the penalty may be worth it to be able to fix for two years at 4.99 percent. In short, don't assume; do the maths."
It might make sense for borrowers to consider splitting their loans into smaller pieces and fixing for a range of terms, to spread their risk, ANZ's economists said.
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