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On Monday 23rd January 2023, we were advised of yet another interest rate update, on this occasion from ASB. As you can imagine, we get emails like this regularly from every bank, and honestly, I have a tendency to give them a quick skim and then hit the delete button.
But this update caught my eye – here’s the table they sent out – can you see what I see?
| Old Rate | New Rate | |
| 6 months | 6.50% | 6.84% |
| 1 year | 6.54% | 6.84% |
| 18 months | 6.64% | 6.79% |
| 2 years | 6.74% | 6.79% |
| 3 years | 6.84% | 6.69% |
| 4 years | 6.99% | 6.59% |
| 5 years | 6.99% | 6.49% |
The thing I spotted, for the first time in ages, is that the longer-term rates are lower than the short-term ones, and this is a remarkable thing indeed. Normally, you pay a premium to have a longer period of certainty with your mortgage interest rate but that relationship has just flipped.
The technical term for this situation is ‘interest rate inversion’ and if you Google it you’ll often find ‘economic recession’ in the same sentence. I prefer to think of it as an indicator change. It’s a reason to open your eyes and put your thinking cap on.
What does inversion mean?
The following thoughts flashed through my brain when I saw the inversion:
- ASB think that the RBNZ will increase the OCR in February because inflation is not under control (yet). We know this because ASB put up their short-term rates.
- Inflation will be under control at some point, and these rates tell us that might happen in about two years’ time.
- Going for a fixed rate of three years or more duration may not be wise. You’ll get lots of certainty (good) but if this table is right, you could end up feeling a bit stuck as rates begin to fall about two years from now.
If you’ve got a refix coming up this year, an 18-month or two-year option might be the go, because when those rates expire you’ll be staring at a downward trend. Having said that: please don’t lock in a two-year fixed-rate simply because you’ve read this information from a blog post! Every person’s situation is unique and those thoughts that flashed through my mind have not (could not) taken your circumstances into account.
Remember, the above might pan out differently, as I said, when rates invert it’s a reason to take note. It’s also a reason to get in touch and talk with us about your situation. If you have any concerns, please feel free to do so.
