NZ Mortgage Interest Rate Outlook

The best mortgage structure depends on your personal situation of course but here is an update on our general thoughts right now.

Interest rates have been heading up (more than double in the last 12 months) and are continuing to go up. The key issue is inflation running at well above 3% which is a problem for central banks around the world including the Reserve Bank of New Zealand.

As long as inflation persists central banks are going to need to keep increasing interest rates. They basically need to crush the economy to allow rates to go down again and for a healthy economy to emerge.

It sounds counter intuitive but the best news would be to see negative economic indicators on consumer spending and employment before things can start to return to normal. So bad economic news would be good and good news would be bad.

So are the rate hikes having an impact? So far there has been no impact on employment which is at record highs and worker shortages remain. However consumer surveys in New Zealand on spending plans show that the impact of higher rates might be working already. In the last 12 months the net % of people saying they planned to spend more was around 30%. Now the net number has turned to negative 12%

The Reserve Bank is starting to see the reaction it wants which means there may be some hint of light at the end of the tunnel with future interest rates, but we would need to see consumer spending get much weaker.

For what it is worth we expect rates to continue to rise in the next 12 months but at some point in 2023 or 2024 rates will likely peak and be on the way back down again.

Therefore, our view is the longer term 4 year and 5 year fixed rates are poor value for money, and we wouldn’t want to be re-fixing in 12 months either. So this leaves us looking at the 2 year and the 3 year fixed terms, and favouring the 2 year.

This is crystal ball gazing to a certain extent but we know that eventually interest rate rises will have an impact on the economy. As your dedicated mortgage broker, we recommend considering different fixed terms to hedge your bets, with the 2-year term as the cornerstone of most people's mortgage structure.