Last week, many banks in New Zealand made changes to their home loan rates, which has led to inquiries from individuals about whether the interest rates have reached their peak, if they should wait until the last minute to lock the rates, or if they should fix the rates for a short period of time, expecting them to decrease. In this article, we will discuss the interest rates and share our perspective on how to fix your home loan.

It is important to note that the information provided in this article is for general purposes and does not take into account personal circumstances or goals. Before making any decisions, it is recommended to seek professional advice from a mortgage advisor.

Recently, the fixed term rates for 18 months to five years have decreased, which is good news for us. However, the one-year and shorter term rates have increased. People who believe that interest rates have reached their peak, should know that we have not reached that point yet. We have observed that the interest rates for shorter terms have surpassed those of medium to long-term rates, which deviates from the trend observed since the Global Financial Crisis.

To understand these movements, we need to understand what drives the shorter-term and medium to long-term interest rates. The shorter-term interest rates are driven by the OCR, or the official cash rate set by the Reserve Bank of New Zealand. Over the past 18 months, the Reserve Bank has been using the OCR to control inflation, and when the OCR increases, borrowing costs will also increase, leading to a decrease in demand and hopefully a drop in prices.

The floating, 6 month, and 12 month interest rates are all affected by the OCR. When these rates increase, the borrowing capacity assessments used by banks will also increase.

Medium to long-term interest rates, on the other hand, are driven by wholesale rates, which are the banks’ borrowing costs from overseas. Recent lower than expected inflation and wage data in the United States has led to a decrease in wholesale borrowing costs in New Zealand, explaining the decrease in medium to long-term interest rates.

As for the future trend of interest rates, economists predict that the shorter-term rates will continue to increase at least throughout 2023. The December quarter inflation data was slightly better than forecasted, but the Reserve Bank still has a long way to reach its inflation target of 2%.

Based on this information, our perspective is to fix the home loan for 18 months, as the shorter-term interest rates are currently higher than the medium to long-term rates. However, this decision ultimately depends on personal circumstances, future economic predictions, and risk tolerance.

If you would like further advice, we would be happy to assist. Please don't hesitate to reach out.

Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.