Borrowers move to fixed rates

Borrowers are flocking to fixed-rate mortgages to provide protection against looming official cash rate hikes, which have been well-signalled by the Reserve Bank.

The Bank has been optimistic about its ability to have an impact with OCR hikes because three-quarters of New Zealand mortgages have been on floating rates or fixed for short terms.

But that may be changing.

The latest statistics show there was $64.3 billion of home loans on floating rates at the end of May, about a third of the total by value.

That’s down 1.8 percentage points on the month before, the second-biggest drop since the data series began in 1998. The biggest fall was this March, down 2.7 percentage points.

The value of mortgages on terms up to one year dropped in May compared to April. Terms between one and two, and two and three years became more popular.

Banks have been promoting special rates for two-year terms, which have been cheaper than one-year rates in many cases.

Many of these specials have now started to be removed.

There was also an increase in the amount of lending on rates of three to four years, but the amount on longer terms decreased, possibly reflecting the fact that some of the longer-term rates still seem pricey by comparison.