Home Loan Rate - On their way down

• The Official Cash Rate is now falling, with more cuts expected in 2008 and into early 2009.
• However, global funding costs remain high as financial conditions remain challenging.
• Mortgage rates have fallen substantially since May, and will continue to edge down.

Mortgage rates have been declining ever since it became clear that the RBNZ would move to cut the OCR as the economy weakened noticeably.  Fixed mortgage rates were the first to fall as wholesale rates progressively priced in the expectation of earlier and greater interest rate cuts from the RBNZ.  With the OCR itself now falling, floating mortgage rates have started to follow.  We expect the OCR to continue to decline to 5.5% in the early parts of next year.  As the OCR falls, mortgage rates will continue to decline.  However, financial markets have already factored in continued deciles in the OCR, so any falls in longer-term fixed rates are now likely to be more muted.  Short-term fixed rates and floating rates will tend to be the main movers.

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Posted: 5 Dec 2008

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