Borrowers in New Zealand face a new landscape in fixing their home loans, with rates climbing and experts debating the optimal term amid market fluctuations and economic forecasts.
Borrowers weighing how long to fix a home loan are facing a familiar trade-off: a shorter term offers a lower starting rate, while a longer fix buys more certainty for only a modest premium. In New Zealand, banks are still pricing six-month loans at about 4.75% and one-year deals at just under 5%, while two- to five-year rates sit roughly between 5.39% and 5.69%, according to the rates cited by RNZ.
That spread comes after a sharp shift in the market. ASB’s Chris Tennent-Brown said mortgage rates had already moved up from their lows earlier in the year, and he argued the decision should not be framed solely as a search for the bottom of the cycle. The bigger question, he said, is how much protection a borrower wants if rates rise further over the coming months.
Tennent-Brown said a longer fixed term can be good value when the difference between short and long rates is relatively small. He also noted that splitting a loan between shorter and longer terms can offer a middle ground, giving borrowers some flexibility while still locking in part of their borrowing costs.
Westpac chief economist Kelly Eckhold said the short end of the market was cheapest because lenders and borrowers alike expected rates to keep rising. He said the current curve is flatter than it has been in the past, meaning the extra cost of fixing for two or three years is not especially large. In his view, that makes longer terms a reasonable hedge if inflation or economic growth force the Reserve Bank of New Zealand to tighten more than expected.
BNZ chief economist Mike Jones said financial markets were already anticipating a modest rise in the Official Cash Rate, which should limit how far fixed mortgage rates increase from here. But he warned that the outlook remains data-dependent and could change if inflation or growth surprises on the upside. Infometrics chief forecaster Gareth Kiernan took a similar view, saying rolling one-year fixes may average out cheaper over time, although that depends on forecasts proving correct. ASB’s earlier research in February and September showed the bank had already been expecting the OCR to move higher again after a period of easing, underlining how quickly the mortgage outlook has changed.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
