ASB: Rates may not get much lower

ASB's team of economists, led by Nick Tuffley, say the "big moves down have already occurred" on mortgage rates. They believe pricing will remain at "historically low levels over the year ahead".

The team believes banks will be mindful of pressures on term deposit rates, and will be reluctant to slash mortgage rates further.

"It’s also not all about mortgages – banks have so far been reluctant to aggressively cut most term deposit rates in the wake of the large August OCR cut, as they still need to attract savers to invest."

"The competitive pressures to attract term deposits are an opposing force on mortgage rates, contrasting the downward pressure from the lower OCR and lower wholesale interest rates that prevail at the moment," the bank adds.

The bank believes the friction between borrowers and savers will keep rates hovering around current levels. 

"Whilst borrowers are happy about the low interest rates they are now paying, savers are frustrated by the corresponding drop in their fixed-interest income over recent years. If, when, and by how much mortgage rates can fall in the future will in part be a function of where term deposit rates settle."

ASB believes borrowers carrying long-term debt should still "budget on higher mortgage interest rates in the longer term", but expect rates to "eventually settle at levels that remain below long-run averages of the past 20 years".