Given that the Reserve Bank held the Official Cash Rate (OCR) at 8.25% following its final rate review of the year last week, it is not surprising that there have been few movements in home loan rates since then.
Many lenders had re-priced their mortgages in the weeks before the latest OCR review, reacting to the rising price of funds in the wholesale debt markets. There is still the possibility of even higher rates for mortgage borrowers in months to come because of international and domestic conditions.
On the international scene, it is still unclear whether the credit crunch will worsen, and what the full consequences will be for world economies and for financial institutions.
In New Zealand, the RBNZ is still concerned about inflationary pressures. RBNZ governor Alan Bollard commented that rates here may have to stay high for longer than expected. Economists took the view that borrowers could not expect the OCR to start falling until the end of 2008.
Official rates of interest in the US and UK have already started to fall as central banks in these countries have judged that their economies may need stimulation to avoid sharp economic slowdowns.
Despite the continued warnings of New Zealand's central bank about the need for rates here to remain high, the signals from overseas suggest that even here, we may be near the top of the latest rate cycle.
Five-year fixed rates are only marginally lower than shorter term fixes at present and shorter-term fixes look more attractive. It is not yet clear that rates will be much lower in a year's time, so a one-year fix won't necessarily allow for cheaper borrowing when the fixed rate expires. If you think New Zealand's rates will follow leading overseas rates down sooner rather than later, you might want to risk a one-year rate. Two-year rates probably offer a better prospect of delivering borrowers to a new, cheaper climate for credit.
However, rates are only part of the story in the market at present. Brokers continue to report difficulties in finding lenders willing to advance funds to borrowers they consider carry a higher-than-normal risk. Where funds are available, the lender's quoted rates may be too high for borrowers to bear. It is unclear yet how big the impact of this credit squeeze will be on the property market and the economy in general.