Mortgage rates are being pushed and pulled in all directions as lenders grapple with conflicting pressures in their businesses.
The sudden and unexpected 0.75% cut in United States interest rates this week is a new factor for them to consider. In New Zealand, the Reserve Bank will announce its first rate decision of the New Year today.
Overall, the trend emerging is that five year rates from banks seem to be downwards, while non-bank lenders are still raising long term rates. Meanwhile there is pressure across the board on shorter term rates. Fixed rates are now breaking the 10% barrier that was breached by floating rates several months ago.
Lenders blame the conditions in international credit markets - a tightening in the availability of funds - for the increases in the cost of shorter term rates. New Zealand's official rate, currently at 8.25% and expected to remain at that level for a while, also influences shorter term rates.
Economists are not expecting the official Cash Rate here to fall until later this year, at the earliest. However the steep cut in US rates adds new uncertainty to the outlook on rates generally; the New Zealand dollar bounced against the US dollar after the overnight rate cut and renewed strength for the local currency would put exporters under pressure.
Economists and mortgage brokers have been recommending that borrowers opt for two and three year rates in the expectation that when these loans mature, cheaper borrowing will be available. However, there is also a view that borrowers with larger debts should spread their borrowing across a variety of terms.
Competition between lenders is still working to the advantage of borrowers according to brokers. The general trend in advertised rates has been upwards but lenders are still willing to negotiate over rates. Lending volumes are down because the heat has been taken out of the housing market and banks are under pressure to win business.
The current market could be a test for ability of smaller lenders to raise wholesale mortgage funds at competitive rates. The cuts in five-year loan rates are being lead by Kiwibank and Westpac yet there have been increases over that term from several smaller lenders.