Plenty of talk recently about interest rates falling further. 

I reckon the talk is right.

But how low will they go? Will mortgage rates go under 3%? 

I see rates wobbling down around 3 to 3.5% and that’s about it. The slide will be gradual and will probably occur over the next 12 months.

Remember that the banks have to get a big chunk of the money they on-lend to you and I in the form of mortgages, from domestic sources. That’s your good old term deposit money.

At the moment those term deposits are paying their savers a measly 3% interest. If rates fall further then the return on those term deposits will drop too. If your grandma only got 2% on her money, then she’s likely to pull it out of the bank and put it somewhere else. The fact the banks have been lucky enough to have held on to these low-interest-earning savings so long is simply because older generations are generally conservative, and why risk putting your money elsewhere? 

Yeah I know it’s not quite as simple as that but my point is you’ll get to a natural baseline for interest rates, a point after which any further interest rate falls won’t have much effect or even be passed on to borrowers. 

The way I see it, the OCR is about to run out of Viagra.

How do you stimulate an economy if the big gun you normally use (interest rates) doesn’t work anymore?

Well, here’s a possible answer and I believe you might see it come through in 2020.

The LVR restrictions could be relaxed further. 

Yes, the amount of lending that can be done for people with ‘small’ deposits will increase. And since the current government is jealous of property investors, it’ll be first home buyers who benefit most from this move. Good news…

Infrastructure spending and an income tax cut are other things the government could do. Build some roads, bridges and tunnels. Maybe dam a couple of rivers to power the electric cars we’ll all be driving.

What are your thoughts on where rates are headed?

Should you wait for them to drop or do you lock something in now and get on with life? Here’s what Noeline would do.

Want to chat more about your options – we’re here.

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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