NZ borrowers opt for stability with longer rates
Recent data from the Reserve Bank indicated a significant shift in home loan borrowing habits among New Zealanders, as the mortgage market generally stabilises with a shift toward more secure, longer-term commitments.
In January, a striking 89.5% of new owner-occupier loans were either floating or fixed for less than a year.
David Cunningham (pictured left), CEO of Squirrel, noted a drastic change in borrowing trends.
“It’s a point in time thing,” Cunningham said.
Following the OCR reduction in November, many opted for floating and six-month fixes, anticipating further cuts. This trend reversed as more appealing rates emerged, RNZ reported.
The impact of a 4.99% rate
The introduction of a 4.99% two-year rate has been pivotal, persuading many to lock in for longer periods.
“The 4.99% rate has been an absolute game-changer,” Cunningham said.
This rate shift has led borrowers to favour traditional two-year terms, a staple in New Zealand for decades.
Currently, there is a noticeable decline in the preference for floating rates and shorter six-month fixes due to their comparatively higher rates, RNZ reported.
Borrowers opting for stability
With attractive longer-term rates available, most are now choosing to split their home loans across one-year and two-year, or two-year and three-year terms, with a significant majority allocating their funds into two-year periods.
“But 60% or 70% of actual dollars is going into two years. We have seen a profound change,” Cunningham said.
Economic outlook and rate predictions
ASB senior economist Chris Tennent-Brown (pictured right) suggested that the convergence of economic forecasts, marketing strategies, and borrower expectations around the 4.99% rate has prompted many to act.
However, he warns of potential increases in longer-term rates, emphasising the volatile nature of markets that could influence future rates.
Navigating rate choices
Tennent-Brown emphasised a strategic approach to managing home loans in light of fluctuating interest rates.
“People really need to think the actual thing they should be trying to do is minimise the interest rate cost over the life of the mortgage, not pick the bottom,” he said. “There’s no point getting the lowest rate that occurs this cycle if you’re paying through the nose to get it.”
This approach aims to prevent borrowers from incurring higher costs in pursuit of temporary rate dips, suggesting a more strategic long-term financial planning approach, RNZ reported.
He cautioned that “interest rate markets are volatile and can change quickly,” which directly affects mortgage interest rates, and warned that the path to lower mortgage rates isn’t straightforward and involves considerable risks.
