Kiwi homeowners shift toward two-year fixes as rate cuts loom
New Reserve Bank of New Zealand (RBNZ) data shows homeowners continued to favour short-term and floating mortgage rates in February, but a sharp rise in the uptake of two-year fixed terms suggests borrowers are responding to banks’ competitive pricing and anticipating further interest rate cuts.
Of the $4.036 billion in new mortgage lending taken up by owner-occupiers during the month, nearly 40% ($1.607 billion) was on floating rates.
While floating remains dominant, two-year fixed rate options saw a significant surge, increasing to 11.2% of new owner-occupier loans—up from just 4.9% in January.
The shift coincided with the RBNZ’s 50 basis point cut to the official cash rate (OCR) on 19 February, bringing it down to 3.75%.
The February data comes from the RBNZ’s C71 series, which records mortgage flows at the time loans are drawn down, providing a real-time view of borrower behaviour. That data paints a clear picture of cautious homeowners opting to stay short while watching rate trends closely.
Six-month fixed terms, which had recently been the most popular short-term option, saw their share drop sharply—from 30% in January to just 17.5% in February. The growing appeal of two-year terms likely reflects the heavy promotion of “special” fixed rates by banks, which have begun pricing those terms lower than one-year or shorter durations.
Investor behaviour mirrored that of owner-occupiers. Floating-rate uptake among residential investors climbed to 43.0% from 35.1% in January, while six-month fixed lending dropped 18.2 percentage points to 16.4%. Two-year fixed terms rose from 3.6% to 11.6%.
The uptick in two-year commitments suggests confidence that rates may continue to fall. The RBNZ began cutting from a peak OCR of 5.5% in August 2024, and another reduction is widely expected at the upcoming 9 April review.
However, with former governor Adrian Orr gone and global uncertainty—including the economic ripple effects of US President Donald Trump’s tariffs—clouding the outlook, it remains to be seen whether the momentum toward longer-term fixes will hold.
For now, Kiwi borrowers appear to be treading carefully, trying to lock in a “four” on their rates while keeping options open.
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