Last week the Reserve Bank dropped the official cash rate (OCR) by 1.00% to 6.50% – and immediately banks decreased their mortgage rates.
The best rates out there today amongst the major banks are 7.95% for six months and 7.90% for one year (forget anything past one year).
What excites us is to finally see a bit of competition amongst the banks. Bank economists did everything they could to talk mortgage rates up, but competition and the “Government guarantee” were the winners on the day!
With tight credit criteria restricting any appetite for borrowing, there is room for further rate cuts leading into Christmas and early in the New Year. Six months ago we thought rates would not fall as far as the last recession when we saw rates get as low as 5.70%. Increasingly our view is that we might just see a rate with a five in front.
Our interest rate view at the moment is:
- Don’t fix until the settlement of your property is near
- When you do fix, make it for six months or one year at the maximum.
If you are looking at property now then you can expect to get an initial mortgage rate of around 7.50% for the first six months and then 6.75% when you refix six months later.
The next OCR is 4th December and we are likely to see another rate decrease although of a smaller magnitude (50bps or half a percent.) Ended up being 1.50% – wow!
Although rates are dropping quickly, do not expect to see lots of buyers out there over the summer because of tight credit criteria. A 10% deposit is almost mandatory, everyone is spooked, and property investors cannot leverage off the back of lower property prices. If you can afford to borrow then the next six to 18 months will be good buying. You will never find a great deal if you don’t ask!
