•  Interest rates are likely to remain high over 2007.
• But interest rates decreases remain on the cards for 2008.
• Fixing for no more than 2 years seems the better course of action.

Recent months have seen the Reserve Bank (RBNZ) push the Official Cash Rate (OCR) up three times to an eye-watering 8%.  Consequently, floating mortgage rates are exceeding 10% for the first time since 1998.  Fixed-term mortgage rates have risen by 80-100 basis points since the start of the year, a considerable amount in a short period of time.  Importantly, the 5-year rate is now nearly 9% and no longer offering much of a hiding place from the RBNZ’s efforts to make mortgage borrowing more expensive.  But those very increases make further OCR lifts less likely, and the odds presently favour the OCR remaining where it is for the rest of the year.  Even so, the relative balance of risks is to higher, rather than lower, interest rates.  With that in mind, fixing the bulk of any borrowing remains the best risk management option – in addition to the fact that fixed rates are still considerably lower than floating rates.  However, as interest rates are unlikely to drop until sometime in 2008, it makes sense to fix for around 2 years to tide you over until interest rates have dropped back.  Though the 5-year rate may still have some appeal due to the fact that it is still the lowest on offer, we suggest steering clear of that term now if the level of the rate is your primary consideration.

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