The Reserve Bank will review the official cash rate this week and most economists expect a 25 basis-point increase – but what lies ahead for home loan rates?<\/p>\n
Borrowers can currently lock in a one-year rate at 4.99 percent, while two-year rates vary between 5.29-5.45 percent at the big banks.<\/p>\n
The cheaper one-year term has been popular with borrowers, but in its recent breakeven analysis, ANZ said shorter-term rates would not have to rise by a lot to make it cheaper to take a longer fix over time.<\/p>\n
“Our sense is that there is nowhere to hide. Fixing for six months is cheapest, but will likely expose you to fixing at a higher rate, when you roll over in six months, so it’s all about managing risks and, with our breakevens showing that rates like the one- and two-year don’t have to rise by much to make fixing for 2-3 years cheaper in the long run, those tenors may appeal to borrowers, especially as the step-up from one-year or 18-months isn’t that significant.”<\/p>\n
Infometrics chief forecaster Gareth Kiernan said wholesale markets were now pricing in an OCR of 3.14 percent by the end of the year – or another one-and-a-half increases – and 4 percent by the end of next year.<\/p>\n
How a possible OCR rise could affect your mortgage<\/p>\n
He said rates longer than two years still looked expensive, ranging from 5.45-5.59 percent for three years and 5.45-5.79 percent for four, but he said a two-year rate of 5.35 percent could be better value than rolling two one-year rates.<\/p>\n
“That’s before you take into account the additional certainty that they offer from a borrower’s perspective.”<\/p>\n
ASB senior economist Chris Tennent Brown expected home loan rates to rise through the rest of this year and into 2027.<\/p>\n
“There is a bit more upward pressure on the outlook for interest rates, including mortgage rates, than there was a few months ago,” he said. “We are concerned that inflation over 2027 could prove slow to recede.<\/p>\n
“We have changed our OCR peak and now expect 75bps of hikes to a 3.5 percent OCR peak.”<\/p>\n
BNZ chief economist Mike Jones said the decision was balanced.<\/p>\n
“It still comes down to whether households judge the additional certainty of fixing for longer terms to be worth the extra upfront costs.”<\/p>\n
He said there were reasons to think some of the shorter terms might increase.<\/p>\n
“The fact the market is already pricing in the OCR rising to a peak near 4 percent is important context, because it will limit how far some of those particularly longer-term fixed mortgage rates rise as a higher OCR is actually delivered on. Our view is that additional increases in mortgage rates over the coming 6-9 months are more likely to be concentrated in the shorter-terms.”<\/p>\n
Squirrel chief executive David Cunnigham said the market had already priced in enough increases to the OCR that the decision this week would not make much difference.<\/p>\n
It would push up floating home loan rates, but only about 10 percent of mortgages were floating.<\/p>\n
He said he had previously wondered whether the Reserve Bank would be willing to increase the rate in an election campaign.<\/p>\n
“I always thought that, in the back of their minds, they’d be considering that, but they’re just returning to neutral interest rates as the storyline, so it’s no big deal.<\/p>\n
“You know, they’re just lifting them to a level around 3-4 percent, maybe 3.5 is where they finish up, but that’s already priced into fixed rates.”<\/p>\n