Doors closing on lowest mortgage deals

Interest rates are still at historic lows, but the window of opportunity for homeowners looking to lock in a juicy mortgage deal may be beginning to close.

This morning the Reserve Bank left the official cash rate - which strongly influences interest rates offered by banks - unchanged at its record low of 2.5 per cent. New Reserve Bank governor Graeme Wheeler noted that lower funding costs for banks and increased competition had seen mortgage rates fall.

The floating mortgage rate for most major banks sits around 5.75 per cent, currently undercut by cheaper fixed terms of one to two years.

Westpac chief economist Dominick Stephens said the central bank had begun to acknowledge the risk of the heated housing market.

"We do think house prices will keep rising pretty aggressively in 2013, and therefore our view is that the Reserve Bank will have to begin increasing the OCR from September."

The number of Kiwis switching to fixed-term mortgages has been steadily increasing since April, although about 56 per cent are still floating.

Stephens said on balance, it was likely to be better to fix before interest rates began to recover from their record lows.

"The only way you can win by floating is if the Reserve Bank reduces the OCR, or if fixed mortgage rates fall further from here," he said. "I don't think either of those things are going to happen, unless there's a really serious disastrous development overseas."

Stephens said there was however a "reasonably small" chance that the OCR could fall further.

That was seconded by ASB chief economist Nick Tuffley, who put the likelihood around 20 per cent. ASB is also forecasting that the OCR will begin to rise from September next year.

"You still do have, say, anywhere between 9-12 months or so before the cash rate is likely to be going up," said Tuffley.

He said interest rates weren't likely to shoot up in the short term, but cautioned those contemplating fixing not to wait until the last moment.

"If you're leaving it until it's pretty clear interest rates are going up, the rates will have already risen in anticipation."

Tuffley also pointed out that the decision to float or fix was not always clear-cut, and depended very much on individual circumstances.

Floating had the advantage of flexibility and ease of repayments, while fixed mortgage rates offered a degree of certainty.

While New Zealand interest rates look set to rise, the Reserve Bank of Australia dropped its cash rate to 3 per cent yesterday, the lowest it has been since the global financial crisis.

Three out of the four big Aussie banks responded by passing on most of the 25 basis point cut to drop variable mortgage rates by 20 points.

ANZ Australia is sticking with its tradition to not announce its decision until the second Friday of each month, which will be December 14.

Stephens said there was no logic to suggestions that New Zealand should follow Australia's lead by cutting the OCR.

He pointed out that Australia was at a completely different point in the economic cycle, and its cash rate was still higher than New Zealand's.