Why mortgage rates are likely to fall even lower

The economists say the Reserve Bank could push down borrowing costs for retail banks by introducing a direct lending facility, as well as making further cuts to the official cash rate.

A central bank move to introduce a lending facility would mean "term deposits, wholesale interest rates and fixed-term mortgage interest rates would all be expected to decline", the economists said. 

The big four lender cautioned that any rate cuts from here would be "minor", compared with what we have seen over the past 18 months.

"But we don’t think that mortgages would fall by much compared to how far they have fallen already. Competition between lenders is always in the mix putting pressure on mortgage rates, so tweaks lower on particular terms are always on the cards. In saying all this, we stress that we think the large falls in mortgage rates have already occurred over the past couple of years."

What are the best options for fixed rate borrowers? 

ASB forecasts suggest fixing and then rolling on shorter-term one and two year terms in the current environment, a move "likely to be the cheapest option over a five year time horizon".

"At this juncture our forecasts suggest some terms could dip a little more (if term deposits decline, and the RBNZ cuts the OCR again, or lowers the cost of bank funding via other initiatives), but the big moves have already occurred. Rates are expected to move higher eventually, but not over the next year or two."