Why Kiwis might pass on mortgage rate of 4.99% as OCR cut looms

- The Reserve Bank of New Zealand is expected to cut the Official Cash Rate from 4.25% to 3.75%.

- Tella mortgage adviser Jose George warns homeowners not to expect significant changes in home loan rates.

- George suggests the OCR drop may influence how long people fix their mortgages for.

Tomorrow’s OCR decision will not result in big drops in home loan rates, a leading mortgage adviser has told OneRoof.

The Reserve Bank of New Zealand meets for the first time in three months on Wednesday, and commentators predict it will cut the Official Cash Rate from 4.25% to 3.75%.

But Tella Home Loans financial adviser Jose George said homeowners should not suddenly expect mortgage rates to fall by the same amount.

A lot of the banks have already adjusted their mortgage rates in recent weeks, in anticipation of a lower OCR. Westpac cut its three-year rate to 4.99%, BNZ and ASB’s two-year rate has dropped to 5.29%, while the lowest one-year rate is just under 5.5%.

George expects the OCR drop will affect mortgage fixing more than bank rates. Most people have been choosing to refix their mortgage for no more than a year in recent months, but once the OCR approaches its forecast low of 3.25%, they might start fixing for longer.

“We are not going to see too much movement from the banks,” George said, of future mortgage rate cuts.

While Westpac’s three-year rate was tempting, he believed Kiwis were more likely to take a more cautious approach and refix for 18 months or two years instead.

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“Three years is a long-term commitment and most customers usually in New Zealand tend to fix around the two years. Two years tends to be the sweet spot.”

George said home loan rates would likely land between 5% and 6% this cycle. “This is where the market has sat over the long-term. After 2020/21, people got used to cheap money. It has taken people a bit of time to come back to the reality that 5% to 6% is usually where the market sat at anyway.”

George said that the Reserve Bank’s Monetary Policy Statement, released alongside the OCR decision, would indicate where the economy was headed and how low the OCR was likely to go.

“That could give you a sense as to whether they want to ride their way to 3.25% by the end of the year, because that impacts a lot of things again, especially on the floating rate,” George said.

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