Where will interest rates head over the long term?
The future is uncertain. After all, it hasn’t happened yet.
Over the long term we assume the fixed mortgage interest rate will be 4.5%.
It won’t be 4.5% forever; sometimes interest rates will be higher, sometimes lower.
But here at Opes Partners we think 4.5% is the right number to use for 2 reasons.
#1 The Neutral OCR is estimated at 2%
Looking back over the last 10 years, the average difference between the OCR and the 1-year fixed rate is about 2.5%.
There are differences, but the pair follow the same broad trend over time.
The Reserve Bank suggests that the long-term neutral OCR is around 2%.
That means that when they are neither trying to speed up nor slow down the economy, the OCR should be around 2%.