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The last time I shared my thoughts on interest rates was back in February. At that point, my observation was that uncertainty had increased compared to 2025, and as a result, more people were choosing to “hedge their risk” by splitting their lending across different fixed-rate periods.
Since then, uncertainty has taken on a whole new meaning.
It now appears that a war has broken out — and in a strategically significant part of the world.
With oil prices spiking, it’s likely that many other prices will follow. Even if the things we consume aren’t made from oil, they’re almost certainly transported using it.
Against this backdrop, wholesale interest rates (in other words, what it costs banks to “buy” money to on‑lend) have also jumped. As an example, between 23 February and 23 March, three‑year wholesale rates increased by around 0.6%.
In response, banks have lifted most of their fixed home loan rates (with the exception of the six‑month and one‑year terms) by around 0.1% to 0.2%.
Banks don’t source all of their funding directly from wholesale markets, so there isn’t a perfect one‑to‑one relationship between wholesale rate movements and home loan rates. That said, wholesale rates are still a useful indicator of where things may be heading.
The big unknown, of course, is whether this is a short‑term spike or something more persistent.
I’m no geopolitical expert, but it seems fairly clear that the longer the US/Iran conflict continues, the greater the chance that home loan interest rates could rise and stay higher for some time. If peace breaks out quickly, oil supply may stabilise and things could settle back down.
Either way, it’s fair to say we’re still living in uncertain times.
The big unknown, of course, is whether this is a short‑term spike or something more persistent.
As I always say, everyone’s situation is different. What’s right for one person won’t necessarily be right for the next.
That said, in times like these, I can understand the logic of paying a small premium (that is, a slightly higher interest rate) to have a good portion of your loan fixed for around three years.
At the same time, the one‑year rate is currently around 0.6% cheaper than the three‑year rate. So don’t discount (excuse the pun) the idea of fixing some of your lending for a shorter period. The repayments are lower for now, and you have more flexibility to restructure your loan without the risk of break fees when that rate expires in 12 months.
The trade‑off, of course, is that when that one‑year rate comes up for renewal, rates at that time might be significantly higher than they are today.
When I sit down with clients to talk through their options, I often find there’s a solid rationale for several different approaches. If one scenario plays out, one option looks best; if another event occurs and rates move differently, a different option might come out on top.
Because of this, I frequently come back to recommending a hedging strategy — particularly using a mix of one‑year and three‑year fixed terms. There are, of course, shorter and longer options available, but in general, six months feels very short, and five years feels like a long time in which a lot can change. Over that timeframe, your home loan needs may also change.
I hope this has been helpful. Before making any decisions, I strongly recommend talking things through with your mortgage adviser. While we can’t always be overly prescriptive, we can take the time to walk through the options with you and help you make an informed decision.
Book a 15 -minute call with our team to find out how we can help you with your mortgage strategy.
Brendon.
Brendon Ojala (FSP119244) is a Financial Adviser with Velocity Financial (FSP95466). No financial decision should be taken based on the information in this blog alone. Please see our disclosure statement on our website.
About Brendon:
Hi, I'm Brendon, one of the owners and advisers at Velocity Financial. I have been giving advice on mortgages and insurances at Velocity for around 15 years, and it is great to be able to work with people to achieve their financial goals. Prior to giving money advice, I worked as a youth worker and managed teams for a not-for-profit organisation. I live with my wife and one of my sons (the other one only stays when he needs food) in Berhampore, and if I'm not talking revolving credit accounts, I can be found running the trails of Wellington.
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The information shared in this post is meant to be general guide to support you on your journey. When making important decisions about your finances, we encourage you to seek independent financial advice first, tailored to your unique situation. As well as talking with a financial adviser, make sure you talk to your lawyer and accountant too – together they'll help you find the best solution for your specific situation. Our knowledgeable financial advisers are here to help. Check out our website for the details about our financial advisory services in our disclosures:
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