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09 May 2014

Kiwis Look to Fix Home Loans

New Zealand homeowners are rushing to fix their mortgages, moving away from floating home loans as interest rates continue to rise. Reserve Bank Governor Graeme Wheeler recently lifted the official cash rate to 3 percent, a 25 basis point rise and the second increase in as many months. According to some analysts, the recent period of historically low interest rates has come to an end, leading more borrowers to fix attractive home loan rates while they have the chance.

In recent years more than half the nations' homeowners have chosen floating mortgages, with borrowers not willing to fix a deal as they take advantage of low interest rates. In March 2013, just over a year ago, the proportion of mortgage money at fixed rates was still sitting below 50 percent. However, the situation has changed dramatically over the last 12 months, first with homeowners anticipating an interest rate hike and now with the reality setting in.

New Zealand's five big banks have reported a significant increase in fixed loans over the last couple of months in particular, with figures from the Reserve Bank also showing big shifts within borrowing figures. According to the latest figures from the Reserve Bank, the amount on fixed mortgages climbed from 60.8 percent to 63.5 percent in March, a big monthly surge in the same month that interest rates rose for the first time in four years. With a second rate rise recently announced, many analysts are expecting this figure to grow more in coming months.

According to Bruce Thompson, Kiwibank communications manager, "Following the latest OCR rise, we expect the figure to increase to 70 per cent of people opting for fixed rates... We anticipate people will digest the latest OCR rates and many will then decide to fix rather than float, or have a combination of both to give them a level of certainty about repayments."

In terms of real money, New Zealanders borrowed $192.592 billion on mortgages as at the end of March. $122.253 billion of this was on fixed rates, with almost $5 billion sheared off floating mortgages over the month. Borrowers have become especially interested in two and three year mortgages, with two-year terms rising to $35.604 billion from $32.998 billion and three-year terms rising to $15.174 billion from $12.398 billion.

Despite the increased movement towards fixed mortgages, however, overall borrowing figures are only showing steady growth at this stage. According to the latest credit figures, overall growth in mortgage borrowing has actually dropped to the lowest level since July last year, decreasing annually from 5.8 percent in February to 5.6 percent in March. Total household claims were also down annually, from 5.7 percent in February to 5.6 percent in March, or 0.4 percent over the month.

Steady borrowing conditions are likely to please the Reserve Bank as they decide future interest rate moves. Current floating rates are between 5.74 percent and 6.25 percent, with two-year fixed deals ranging from 6.19 percent to 6.49 percent. Further rate rises are anticipated by most analysts, although no-one knows how far the Reserve Bank will go or how quickly. While fears of a rapid increase are probably unfounded at this stage, perhaps now is a good time to speak with your favourite mortgage broker.