Is it time to lock in a longer home loan fix?

RNZ News

29-05-2025

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RNZ
Timing the market to lock in interest rates at the very bottom of the cycle is likely to be difficult, ANZ's economists say - but there could merit in taking one more short-term fix before locking in a longer term.
They have released their latest Property Focus report, in which they say they expect the housing market to pick up over the latter half of this year, and for prices to end the year 4.5 percent higher.
But they say the big question on many borrowers' minds is when is the right time to lock in home loan rates.
The Reserve Bank
cut the OCR
again on Wednesday, and banks are offering a range of terms just below 5 percent.
ANZ's economists said the Reserve Bank's own forecasts implied more cuts were coming but there was debate about how quickly and how much.
The Reserve Bank has pencilled in 40bps of cuts, indicating that two 25bp cuts is more likely than one.
ANZ economists expect the OCR to fall to a trough of 2.5 percent in October.
They said wholesale rates were likely to keep falling until the end of the year and mortgage rates were likely to follow suit.
But when markets decided the turn was happening, the opportunity to take cheaper rates could start to disappear.
"History has taught us that when interest rates bottom out, financial markets tend to be quick to conclude that if they aren't falling they will eventually start rising. Given that, we think the proverbial $64,0000 question for most people will be when should I lock in for longer? Loosely speaking the short answer is soon."
Wholesale rates would have a little further to fall, but not as much as the OCR, which could bring one, two and three-year mortgage rates down by another 10bps or 20bps, they said. "At face value that suggests there is merit in fixing for six months with a view to refixing for a longer term when that fixed term ends. The only problem with that strategy is that the future is always uncertain and of course rates may not fall, or if they do they may not fall as much as expected."
They said the US tariff impacts would mean it took longer for the economy to recover than it otherwise would, which would keep inflation at bay and mean rates could fall further.
"We have broadly been of the view that borrowers have had the luxury of waiting a little longer for the past few months and, while it has paid off, and we think that remains the case, time is marching on.
"With one- and two-year rates already at 4.99 percent, they are worthy of consideration too, as is spreading one's risk over several terms or strategies.
"For many borrowers the choice will come down to how convinced you are that interest rates will keep falling and how much you stand to gain if they do."
They said they expected the housing market was likely to stay fairly steady with rising demand being matched by supply.
"The sales-to-listings ratio is a useful indicator of heat in the housing market and tends to give a three to six month lead on house price momentum. It's tracked sideways as rising sales have been matched by growing inventories, and points to modest growth in house prices in the near term."
They said days to sell had dropped a bit but was still above the long-term average.