Yesterday, in the latest issue of his newsletter Tony’s View, veteran economist Tony Alexander talked about where interest rates might go over the next 10 years, warning that long-term economic forecasts should be taken with a grain of salt.
“Do we have any economic forecasts going out 10 years? No. And if we did, I would place very little faith in any pattern they might show of strong growth then weak growth and so on,” Alexander wrote.
Having said that, the economist proceeded to offer some observations, based on available data and projections.
It appears “highly reasonable”, for example, that borrowing costs will rise over the next three years, with the official cash rate (currently at 1%) settling near 2%. Floating mortgage rates (now near 5.3%) may start rising again in 2021, reaching 6.3% by the end of 2022. By 2023, the increase in bank lending rates may add in another 0.5% on top of that. Plus, starting from 2023, the end of the “overshoot factor” may raise rates a further 0.5%.
The economist also provided a “mortgage rate profile” – again, not without warning borrowers that “The uncertainties are many and anyone choosing to take this table as a guide to their likely borrowing costs needs to acknowledge that the future, like the past, will always contain surprises.”
So what should borrowers do to help put their financial future on solid footing? Short answer: choose the right rate and mortgage structure.
“If it is high certainty you seek, there is no way you can get it by looking at any person’s predictions,” Alexander wrote. “You can only get it by locking in the longest fixed rate which you can find – and at 5.7% versus my table showing an average two-year rate of the next seven years of 5.8%, even if you believe the table, you can get your same anticipated outcome but without the worry and re-fixing hassles right now.”
Food for thought. Of course, the right home loan structure depends on the borrowers’ individual circumstances. And that’s why our Mortgage Link advisers take the time to understand their clients’ needs and goals. Fixing for too long, for example, may not be the right choice for home owners looking to sell their properties soon, or those who want the flexibility of being able to pay lump sums off their mortgages.
One size doesn’t fit all. We are here to help your buyers find options that meet their needs.
To get in touch with the team at Mortgage Link, please contact:
021 835 506