Bank of New Zealand chief economist Tony Alexander had some more encouraging news for homeowners and property investors, who have nearly $40 billion of fixed mortgages due to roll over before the end of the year.
"We see scope for fixed interest rates to fall about 1.2% between now and the end of the year.
"This is one reason we think it is wrong to get exceedingly pessimistic about the housing market over 2009.
As interest rates fall, we expect the long queue of potential buyers to shuffle forward a few paces and start purchasing from what could be a decreasing pool of properties on the market, as vendors choose to rent their properties rather than have them tainted by sitting unsold for so long."
If he was borrowing, Mr Alexander would fix at one year at the "absolute most".
The interest.co.nz website said the move signalled that the two-year mortgage rate appeared to have peaked in April at around 9.7% and was now headed lower, in line with lower wholesale interest rates globally.
Easing fears about the subprime crisis, and the resulting credit crunch, were pushing interest rates lower globally and that was now being passed on to New Zealand consumers.
However, many of those rolling over their mortgages this year will still face higher interest rates than the ones that were set two years ago, when the two-year fixed-rate mortgage was around 8%.
But fears of a 10%-plus rate are now receding.
Kiwibank's rate is now clearly the lowest among the banks, with ASB, ANZ-National and Westpac all offering 9.4% two-year mortgage rates.
They all cut their rate from 9.7% to 9.4% in the last week, also in response to lower wholesale interest rates. BNZ offers 9.29% to customers who buy other bank products.
Kiwibank chief executive Sam Knowles said the bank had a policy of leading the market down.
He was unsure whether there would be more cuts to follow and advised customers to get in now in case circumstances changed again.
Customers had been feeling the pain of rate rises and his bank's "customer care" operation to help stressed customers had fielded a significant increase in inquiries.
Kiwibank was getting "many, many calls" from stressed customers.
"With our customers hurting in these environments, we try to pass on any change in the market as soon as we can."
Mr Knowles doubts the Reserve Bank would cut interest rates at its next review on June 5, because there were too many concerns about inflation that were being driven by food and petrol price rises.
Asked if there was a danger that private banks were moving too soon ahead of a Reserve Bank cut, Mr Knowles said: "That's what markets do - they try and make a judgement about what's going to happen in the future.
"They are judging that in the current economic circumstances, the Reserve Bank will be cutting rates and they will be cutting them by more than 25 [basis] points."
When the Reserve Bank did move, it would make a series of cuts, Mr Knowles said Weak labour force and retail sales figures in the last week have reinforced economists' expectations that the Reserve Bank will be able to cut the official cash rate (OCR), currently at 8.25%, sooner rather than later.
Most are still predicting a September cut in the official rate, although chances of a June or July cut are increasing.
The impact of an OCR cut will not be as widespread or as immediate because about 90% of mortgages are fixed-rate mortgages rather than variable-rate mortgages, which are more closely linked to the OCR.
The Kiwibank rate of 8.99% only applies to home buyers borrowing 80% or less than the property's value. Kiwibank also cut its one-year fixed rate to 9.45% from 9.9%.
In the United Kingdom, a quarter of lenders are yet to announce their mortgage rate intentions, five weeks on from the last interest rate cut by the Bank of England.
A total of 24 lenders have not yet said whether they will keep their standard variable rates (SVRs) on hold or reduce them, data from price comparison website moneyfacts.co.uk shows.
Of those that have cut rates, 20 (28%) have passed on a reduction of less than the 0.25% cut in the base rate.
The Bank cut the official rate of interest by a quarter percentage point to 5% on April 10, the third cut since December.
Lenders have been scrapping cheap loans, failing to pass on reductions in the Bank of England base and tightening their lending criteria as they try to boost margins in the credit-crunch fallout.
"With falling house prices, and borrowers finding it harder and harder to get a new deal, the lenders' SVRs are becoming a more attractive option. But these lenders do not want to take on the more risky borrowers who do not have enough equity in their home to get a good deal," Moneyfacts analyst Michelle Slade said.
