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Record low interest rates aren’t coming back: ASB

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Nick Tuffrey, chief economist at ASB, said borrowers should expect mortgage rates to be above recent lows.

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Nick Tuffrey, chief economist at ASB, said borrowers should expect mortgage rates to be above recent lows.

According to Nick Tuffrey, chief economist at ASB, mortgage lenders are wise to budget for higher mortgage payments in the coming years.

But while mortgage rates haven’t returned to their recent lows, they’re below the long-term averages borrowers have experienced over the last two decades, he said in a May ASB mortgage report.

Mortgage rates peaked during the global financial crisis (GFC), with floating rate loan rates rising above 10%. According to data from Reserve Bank Te Putea Matua, ASB did not expect fixed-term mortgages to reach that level.

Tuffrey predicted that the Reserve Bank’s official cash rate (OCR) would peak at 3.5%, but “most fixed-term mortgage rates are expected to settle in the range of 5.5% to 6.5% over the next year. doing.”

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ANZ and Kiwibank are already Announced rise in mortgage rates This week, Tuffrey said mortgage rates will continue to rise for the rest of the year.

Kiwibank Chief Economist Jarod Kerr said in a First View report released Monday that about half of mortgage holders are rolling to new interest rates that are almost double the interest rates they were paying. ..

Not only are mortgage repayments high, but general inflation is pushing up food and other costs, Kerr said, causing households to suffer.

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Adrian Orr said interest rates have returned to normal after they were low during the Covid pandemic.

Markets are now expected to begin to decline from the peak OCR reached at the end of 2024, Kerr said.

However, there was a risk that expectations for the economy turned out to be wrong and could affect mortgage rates.

“If economic conditions worsen, reserve banks have the option of keeping their current settings longer or lowering borrowing costs to support the economy,” said Tuffrey.

According to Tuffrey, the uncertainties are so high that choosing a mortgage strategy to minimize interest rate costs has never been as easy as it sounds.

For individual households, it’s not just the price that matters, he said. Factors such as flexibility and certainty were important to some borrowers.

“Often it’s not as easy as choosing the lowest rate. Historically, the mortgage curve has been” tick-shaped “and short-term fixed rates are lower than both floating and long-term rates. “Masu,” said Mr. Tuffrey.

Because the one-year and two-year fixed mortgage rates are lower than the floating rate, the borrower can only fix the mortgage for a period of up to two years, not the floating rate mortgage, with some certainty and low interest rates. He said he could get it.

Independent economist Tony Alexander said that few people fixed their mortgages to 2.9% for five years according to his suggestion a year ago, and most choose slightly cheaper short-term interest rates. rice field.

Missing that opportunity, the best strategy is to choose short-term one-year and two-year interest rates and “feel pain” waiting for the interest rate cycle to change and interest rates to begin to fall again. Said.

“If I were to fix it now, it would probably take a year or two to go down the curve,” Alexander said.

Alexander predicted pain in the retail and travel sectors as households with mortgages cut spending, but at a higher rate than the “test rate” banks used to calculate whether they could afford to repay. He said only a few borrowers would be expensive.

Those who need certainty of repayment may opt for longer-term loans, Tuffrey said.

However, there was a risk that mortgage rates would peak and fall faster than expected.

“It’s always true that mortgage rates can fall, from the actions of reserve banks to new threats to the economic outlook,” he said.

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