A near-zero Official Cash Rate could spell good news for home buyers

Source: 1News

Official interest rates could tumble to near zero by the end of next year, a business commentator predicts, spelling possible good news for home buyers.

The lowest mortgage rate today is 3.79 per cent for a two-year fixed deal.

The Official Cash Rate, which influences the mortgage market, is sitting at a record low 1.5 per cent, and economists predict it'll drop even more.

Bernard Hickey, managing editor of online news service Newsroom Pro, told TVNZ1's Seven Sharp he reckons "by the end of next year, going into 2021, we could see an Official Cash Rate with a zero in front of it". 

"And that will mean that mortgage rates, particularly fixed mortgage rates, for one-, two-year rates, are likely to drop closer to the three per cent mark."

So is now a good time to fix or float your mortgage?

Hickey said if you're looking for just the cheapest deal, have a regular job and know you're going to be safe for the money, then fixing is simply much cheaper. 

"The banks do their biggest discounts for people who are fixing from anywhere from one to two years."

Floating is typically more expensive, Hickey said. 

"It is useful for some people, though, who perhaps are using their mortgage a bit like their revolving credit. Maybe they've got a business that they operate as well, or perhaps they're planning on winning Lotto, or perhaps Auntie Mavis is about to topple over. Sometimes it's useful to be able to pay back. 

"But for most people who just want the cheapest deal, then fixing one to two years is cheapest at the moment."

Asked how long borrowers should fix their rates for if they want to lock them in, Hickey said that really depends on what you think interest rates are going to do. 

"Now the experts are saying that interest rates could drop between half to one per cent in the next year or two. 

"Even though they're incredibly low at record lows, amazingly inflation is even lower. And so in New Zealand we've got an Official Cash Rate of 1.5 per cent, and most people think it'll be at one per cent or even lower early next year."

Seven Sharp pointed out it is important for people to get mortgage advice based on their personal circumstances.