Bank of New Zealand (BNZ) has lowered interest rates on its three-, four-, and five-year fixed-term home loans, following a similar move by Westpac last week, signaling a potential shift in the mortgage market.
BNZ reduced its three-year fixed rate by 10 basis points to 4.99%, its four-year rate by 36 basis points to 5.19%, and its five-year rate by 40 basis points to 5.29%, according to a statement released by the bank. Westpac made comparable adjustments to the same terms last week, initiating the recent trend.
The rate adjustments come after the Reserve Bank of New Zealand (RBNZ) signaled an expectation of raising the Official Cash Rate (OCR) at a slightly faster pace and earlier timeframe than previously indicated, though not as aggressively as market predictions had suggested. This announcement prompted a decline in wholesale interest rates.
Mortgage advisor Glen McLeod, head of Link Advisory, noted an increasing, though still limited, interest among clients in longer-term fixed rates. “Part of my role as an advisor is to explain the pros and cons of where those rates currently sit and how suitable each option is for an individual client,” McLeod said. “I talk clients through what each rate term could mean in the current environment, where we are in the interest rate cycle, and what is likely to happen based on the best economic information available. The key thing is ensuring clients fully understand the risks and what they are ultimately signing up for.”
ANZ’s latest Property Focus report highlighted that all rates out to two years are now below 5%, a significant change from late 2023 when all rates exceeded 7%. ANZ analysts suggest that fixing for longer terms still holds merit, given the expectation of an OCR increase. They specifically identified the 18-month to three-year range as potentially appealing to many borrowers.
According to ANZ, four- and five-year rates currently sit above their projected peak for one- to three-year rates in the coming year. The report suggests that a decision to fix for four or five years would likely only be advantageous if one- to three-year rates were to rise above 6% over the next two to three years – a scenario ANZ does not currently anticipate. “From a pure cost perspective…the 18-month to three-year part of the curve looks like the sweet spot, offering a good mix of certainty and low cost,” the report stated.
