Interest rate low for one-year terms likely in a few months

One year mortgage interest rates could be as low as 4.5% by September or October this year if the OCR falls to 2.75% in August as predicted by Squirrel Mortgages.

There are three Reserve Bank OCR meetings starting on 28 May and then 9 July and 20 August. At each of these meeting the RBNZ is predicted to cut the OCR by 0.25%, bringing it down to 2.75% by late August.

Assuming that’s what happens, Squirrel Mortgages founder John Bolton says the one-year interest rate could bottom out at about 4.5%.

Longer-term fixed rates likely don’t have that much further to fall, because they’re more heavily influenced by overseas events, including tariff wars and swap rates.

“If a home loan borrower can get longer term rate below 5% , it would be an attractive proposition.”

“If there’s a lesson to be learned from the past few years, it’s that when inflation gets away from the Government, rates can go up quickly – so splitting loans helps spread risk and means borrowers won’t feel that pain all in one go.”

Bolton says now is a good time to be hedging bets by splitting loans across a mix of shorter and longer terms.

“If there’s a lesson to be learned from the past few years, it’s that when inflation gets away from the Government, rates can go up quickly – so splitting loans helps spread risk and means borrowers won’t feel that pain all in one go.” 

No silver bullet

He says while falling interest rates are bringing some relief for borrowers, there's no silver bullet—and even though some parts of the housing market are starting to pick up, it's still weak.

“It's starting to tick over at the entry-level end of the market. First home buyers  have got the memo that it’s a buyer’s market and they’re jumping in to take advantage of lower house prices, lower interest rates and a lot of choice while they can. 

 “Investors on the hunt for a bargain, and who can afford to borrow more under DTI restrictions, have started to come off the sidelines in greater numbers, too. 

“But activity at the upper end of the market – existing homeowners upgrading or downsizing – is still limited, and that’s down to two things.” 

The first, for many, he says is that affordability simply isn’t there. 

When interest rates were at about 7%, many homeowners were in a position where they either couldn’t – or could just barely – afford their mortgage. 

Now that interest rates have come down slightly, that has offered some relief, but not enough for people to feel comfortable going out and spending huge amounts of money or leveraging themselves into bigger and better properties. Bolton says. “It’s just enough that they can afford to live.”

High listings make it a tough market for sellers

Buyers are spoilt for choice with the number of properties for sale.

“There’s still strong demand for high-quality properties – but otherwise, even if owners do choose to list, there’s no guarantee anyone will be willing to buy.” 

The net result, Bolton says is that unless people really “need” to be transacting because they’re moving cities, need more space for a growing family or have to sell because they can’t afford their mortgage, it just feels safer to hold off for a year or two, until the market and the economy are in better shape. 

He says even though ANZ recently revised its house price growth forecast for this year from 6% down to 4.5%, that is a little too optimistic. 

“We’ll be lucky to see a 2-3% increase in house prices this year – driven mostly by activity at the entry-level end of the market.” 

Anything more than that is unlikely, he says, until confidence returns and immigration has picked up to breathe live back into the economy and the influx of property owners who need to sell have sold, clearing out the supply side of the market.  

“That will help to bring a bit more balance to the supply and demand equation, supporting further house price growth next year.”