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Mortgage rates could fall below 2 percent over the next year, economists say, as the world reacts to the fallout from Covid-19.
The official cash rate is on hold at 0.25 percent through March, but it is increasingly expected that it could fall into negative territory by April.
ASB economists said they had revised their interest rate forecasts and expected home loans to soon fall below 2 percent. At the moment, banks are offering rates from 2.55 percent.
They said mortgage interest rates were influenced by a variety of factors, including the official cash rate, developments in domestic and global fixed-rate markets and other influences on bank financing costs, as well as quantitative easing.
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“Quantitative easing is about driving down long-term interest rates in the economy and strengthening liquidity, both of which support demand in the economy.
“Although the Reserve Bank is buying government bonds, it expects the action to lower retail interest rates as well, as lower wholesale borrowing costs are passed on to retail clients and its actions provide banks with another source of income. financing in addition to term deposits and wholesale financing.
“That is what has happened in recent months, with the fall in mortgage rates and term deposits.”
Robyn Edie / Stuff
ASB economists said they had revised their interest rate forecasts and expected home loans to soon fall below 2 percent. At the moment, banks are offering rates from 2.55 percent.
They said they expected mortgage rates to fall over the next year and that if the Reserve Bank cut the official cash rate to -0.5% next year, as predicted by ASB, fixed-term mortgage rates could fall. below 2% over the next year, and all fixed terms should remain below current levels for the next two to three years.
Lower interest rates are likely to boost asset prices, they said. Interest rates should be at levels well below long-term averages for the past 20 years.
“Historically, the mortgage curve has been ‘tick shaped,’ with fixed rates one to three years lower than the variable rate and the five-year rate,” said the ASB economists.
“It is a very flat tick now, with all the fixed rates below the floating rates today. The lowest rates offered vary between the major banks, but are generally in the “belly” of the curve, one to two years.
“These low rates are almost 2% below floating rates, at or near historic lows, and are available at rates around 2.6%. At the other end of the curve, five-year rates are 1.25% or more below floating rates, and now they are in the low 3% range. “
They said that setting the lowest rates on offer and then renewing for short terms would likely be cheaper for five years than setting them for a longer term.
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ANZ Chief Economist Sharon Zollner predicts an annual rate of 1.8% for March 2022.
NZIER chief economist Christina Leung said mortgage rates below 2 percent were possible next year.
“Interest rates both here and abroad have fallen dramatically as central banks around the world embark on an extraordinary amount of monetary policy stimulus aimed at lowering interest rates to encourage spending and investment.” .
ANZ chief economist Sharon Zollner agreed that it was highly likely. She said it would require bank financing for the loan scheme that would allow banks to make loans at rates that were not tied to the rates they paid to depositors. For the moment, banks have to lend at a higher premium than they pay savers.
“The drop in mortgage rates is likely to continue to be a tiered process as there are still some obstacles for the Reserve Bank to align, but the market is already pricing in a good possibility of a negative official cash rate. That’s completely reasonable given that most forecasters now anticipate that it will happen.
“The impact of extreme monetary policy on the long-term health of an economy is certainly a point of debate, but the impact on asset prices is quite clear to see globally over the last decade.”
ANZ expects an annual rate of 1.8 percent for March 2022.
“The direction of travel for interest rates continues to be downward, and additional work from the Reserve Bank over the next six to nine months is likely to provide the right conditions for retail banks to cut mortgage rates to around 2 percent, “Infometrics said. economist Brad Olsen.
“Keeping interest rates low will support the economy by allowing businesses to invest and access financing, but it will also funnel a significant amount of money into the housing market, which could keep house prices in a stronger position of what we originally expected. Many will now be working on how to put together a deposit to take advantage of these incredibly low interest rates.
“Mortgage rates are also looking to stay lower for longer, which will allow more people to fix their mortgages at lower levels over the next few years. These lower levels will support borrowing in the short and medium term, but changes in long-term banking costs are likely to cause interest rates to rise once fundamentals return to normal. “
He said the low rates would push savers to find other places to deposit their money.
“In effect, that could push savers to seek risky investments in the stock market for those who may not have invested in stocks before. The property will also continue to be a favorite for New Zealanders to invest. “
