Why are mortgage interest rates coming down if the OCR is going up?
“Banks fund floating rate lending with floating rate borrowing. That’s why the floating rate the banks pay is closely related to the OCR [which is a floating rate].”
“But when a bank lends for a fixed term for 3 years, they don’t fund it using a floating rate – instead they use wholesale rates.”
“So really, the interest rate reflects the average of what the market thinks the OCR might do over the next 3 years, not where it is right now.”
“And of course, the market expectation is the Reserve Bank going to be dropping the OCR late 2023 … so they will be factoring in 2 years of shortfall.”
Ballpark ... where do you think interest rates will be in 10 to 15 years time?