Too late to fix

Borrowers planning to fix their mortgage but who haven't done so have well and truly missed the boat, BNZ chief economist Tony Alexander says.

In the latest New Zealand Observer, Alexander says that floating mortgage rates will rise by two to three per cent in the next 18 months. However, he also expects fixed rate mortgages to increase in response to a worsening balance of payments, worries about center-left government policies, higher US bond yields and Y2K liquidity concerns.

Alexander says the cost of borrowing fixed for three years has risen 1.5 per cent over the past five months. After two years, there's a strong chance it will cost more for fixed than floating.

"This suggests a mixture of floating and two year fixed could be best. Fixing one year gives little protection not only from rising floating rates but from your own tendency to panic and fix long when the overall environment is one of rising rates," he says.