Simple Strategies for Mortgage Decision Making

Choosing the right mortgage structure can feel like a bit of a crystal ball gazing exercise so we take a very simple approach in our advice to clients:

- if we have a conviction view on say the 1 year fixed for example, we are prepared to go 100% with that

- if we don't have a conviction view we aren't afraid to say so and steer clients towards a blend of fixed interest durations.

Throughout 2020, the 1 year fix has been the only show in town as rates have come down every month this year. We started 2020 at around 3.35% and now achieving around 2.35%

This has prompted many people to blindly favour the 1 year but the past doesn't tell us a lot about the future.

We need to be aware of the following issues

• Reserve Bank base rate of 0.25% unlikely to go down further

• Bank Margins are below average (when bank margins are low there is little room for banks to offer reduced rates)

• Economic outlook improving (can eventually lead to upward pressure on rates)

• The property market has become a political football

There is more upward pressure building up than at any time this year. Despite this, it is still a 50/50 bet that the 2 year would work out better than the 1 year. We don't always need to make a strong bet on what structure is best to take and now is one of those times where we don't have a conviction view , and that would lead us to take a split approach in most cases.

Each individual case is different and requires personalised advice. If you want a highly added mortgage advice/broker service that doesn't cost a dollar, get in touch with us.