Mortgage rates may be at cycle low: ASB

According to the bank's economists, lenders will consider "balance sheet risk management" over the coming months, as borrowers refix their mortgages. The risk management will put "upward pressure" on wholesale swap rates.

Wholesale swap rates have risen since the Reserve Bank's surprise decision to keep the OCR on hold at 1% last week.

ASB's latest economic weekly report suggests borrowers enjoyed "a perfect storm" of favourable lending conditions in the run up to last week's MPS.

"The mortgage rate cuts made in October coincided with a bout of global risk aversion that dragged NZ interest rates lower as well as the local market pricing in an OCR low of 0.5%."

The ASB team, led by chief economist Nick Tuffley, predict the OCR will still drop to 0.5%, but say mortgage rates might not fall much further.

"With the benefit of hindsight we might look back and note that the last few months have provided a perfect storm to the benefit of borrowers. Even if the RBNZ does eventually cut the OCR to 0.5%, as we still assume, term interest rates may not drop back to the levels of last month. At present, our 2-year special mortgage rate of 3.45% looks to be an attractive option for borrowers."

The big four, TSB, and Kiwibank all have a 3.45% two year offer in the market. SBS's 3.39% rate is the cheapest on offer aside from HSBC, ICBC and China Construction Bank.

The Reserve Bank has hinted there may be a high threshold for another OCR cut. On Friday, assistant governor Christian Hawkesby said it would take "something material" to cut the