Now is a good time to look at taking out a fixed-rate mortgage, according to ASB Bank chief economist Anthony Byett.
"If you just look at it on average, these rates look good," he says, noting that the average floating rate has tended to be about 8%. Floating rates below 7% tend to occur when economic growth is very low while floating rates above 9% happen when growth is relatively high.
Four of the five major home lenders’ floating rates are currently 7.85% -- National Bank’s is still at 7.95%. ASB’s fixed rates currently range from 6.95% for six months to 7.7% for five years. The three-year rate is currently 7.55%. (See all the rates here on Good Returns' Rates page).
"You would have to believe interest rates are going down to believe that’s not a good rate," Byett says.
The economy is currently balanced between the risk that domestic growth remains strong and fuels inflation, requiring higher interest rates, and the risk that lower dairy farm incomes and the turmoil in global equities markets spills over into the real global economy.
"There’s no consensus out there as to which way it goes." But Byett thinks it’s likely the global risks will dissipate. "The risks created by the global share market weakness are probably being over-stated," he says. Indeed, the US share market has been steadier and less volatile in recent weeks.
If he’s right, that means interest rates are likely to resume rising again.
Taking this view and locking in longer-term rates at levels which have previously been attractive would protect mortgage holders from future rises. The downside is that if Byett’s view proves wrong, they would miss out on lower rates if the economy deteriorates.
One guide is that key US Treasury bonds, which exert the biggest influence on which way New Zealand’s longer term interest rates go, are currently trading around record lows.
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