Will long-term rates see a revival?
This year, significant mortgage decisions are on the horizon for many households as they navigate through a landscape of falling interest rates.
According to property research company CoreLogic, the vast majority of borrowers entered the new year under floating rates or with fixed terms of less than one year.
Current mortgage trends
Interestingly, the landscape has shifted dramatically over the past year.
CoreLogic data indicates a significant shift in borrower behaviour, with only 10% of new loans fixed for longer than 12 months, down from 51% the previous year, while loans on floating rates increased from 17% to 28%, the highest since 2020, reflecting changes in the economic environment, RNZ reported.
Insights from Kelvin Davidson (pictured above left), chief property economist at CoreLogic, pointed out that borrowers are eager to benefit from the declining mortgage rates spurred by cuts in the OCR by the Reserve Bank.
Davidson also highlighted the anticipation around when borrowers will find long-term rates appealing again.
“The answer to that will be a decision for each borrower to make, but there is certainly a sense that most of the Reserve Bank’s eventual full monetary policy easing has already been factored in to some current mortgage rates – or in other words, those longer-term rates might not fall much further,” he said.
David Cunningham (pictured above right), CEO of mortgage broker Squirrel, believes that it wouldn’t take much for longer-term rates to regain popularity, especially if they drop below the 5% mark.
Cunningham predicted that some rates might fall below 5% within the next three months, making them an attractive option for borrowers historically accustomed to fixed rates between 4% and 5%.
Risks of floating rates
While the shift towards floating rates seems beneficial in the short term, it comes with inherent risks, RNZ reported.
Michelle Isemonger, a Loan Market mortgage advisor, cautioned about the potential drawbacks.
“There’s always risks that come with floating. Your repayments are going to be higher than what they would be if they were fixed,” Isemonger said.
Despite these risks, she noted that more borrowers are willing to take the chance, betting on further rate reductions. However, Isemonger warned, “It is a gamble because you really just don't know what's going to happen, and the biggest consideration really is that your repayments could go up.”
Read the full RNZ report.
