Fixed vs Floating: Christmas Came Early

Governor Wheeler you're a sneaky devil. In February you acted all coy: “Probably no rate drops until mid-year.” Then today...bam! Surprise! OCR rate drop to 2.25%!

I was literally at an ASB economist briefing yesterday—I prefer to listen to Nick Tuffley because of his excellent hairstyle choice—and he made the call for a rate drop in June and August. Less than 24 hours later his slideshow is out of date.

Not that that makes him a bad economist. No one really saw it coming.

So what does this mean for mortgage rates? Well, floating rates should drop almost instantly (Co-op was first off the rank today, good on you guys). We should be looking at the mid 5 per cents for non-discounted rates.

I'd like to see the one-year rate below 4 per cent as a result of this drop. Hopefully by the time this goes online it will have happened. It will take one major bank (HSBC is not a major bank in this instance) and the rest will follow. Below 4 per cent is a huge psychological level and the banks will be keen to grab the upper hand there.

As for the future, well, the rumour mill is now in full swing. There are now forecasts for a further rate drop in April. Think carefully about locking in rates over the next 6 weeks!

Rupert Gough is an Authorised Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.