Short fixed terms continue popularity

Reserve Bank figures show house buyers are opting for the shortest fixed interest rates for mortgages in the hope they will fall at either the end of this year or early next year.

In its monthly series of new lending fully secured by residential mortgages, the RBNZ’s figures show owner-occupiers drew down $4.4 billion in total during April, with $1.7b on one year fixed rates, $721 million on six-month fixed rates and $612m on 18 month fixed rates.

Meanwhile home value growth has completely petered out in the past two months, dipping by 0.2% in May, after a minor 0.1% fall in April.

CoreLogic's House Price Index now shows an average property value across the country of $931,438, up by just 1% from a year ago, but still roughly 11% below the 2021 peak.

On the RBNZ’s figures, the share on six-month fixed terms to owner-occupiers rose to a new historical high of 16.5%, after a previous peak of 15.1% in February. However, the series has only been in existence since 2021.

The one-year term was the most popular and has been since the beginning of the year when market analysts started pricing in OCR drops during the year. This fixed rate accounted for 39.4% of the total owner-occupier lending, although it was down from 42.1% in March.

In contrast, just $121m was taken out on three-year fixed rates, $12m on four-year and $33m on five-year rates.

The share of lending on fixed terms above 18-months declined or held steady – some at or close to historical lows. For example, the share of two-year fixed terms dropped to 8.6% from 10.2%, and the share of three-year terms declined to 2.8% from 3.3% - both historical lows. Four-year terms held steady and are at an historical low at 0.3%.

The share of owner-occupier loans on floating terms increased from 17.5% in March to 17.7% in April.

Residential investor mortgage lending rose to $1.5b in April, with one-year fixed terms making up 45% of new lending, down from 45.7% in March.

The share of new investor lending on six-month fixed terms rose from 16.9% to 18.7%. The share of three-year and four-year fixed terms dropped from 2.2% to 1.6% and from 0.3% to 0.1%, respectively. These figures are historical lows.

Total monthly new residential lending was $6b in April, up 4.4% on March’s $5.7b. Compared to April last year, that figure was up 22% from $4.9b.

The share of total new residential lending on fixed interest rate terms increased slightly to 81.9%, up from 81.7% the previous month.

Multi-speed conditions

CoreLogic says below the recent stagnation in housing values at the national level, the main centres are showing multi-speed conditions. Auckland dropped a notable 0.8% in May, after a 0.6% fall in April, while Wellington saw a 0.6% fall, and Tauranga dipped 0.5%.

By contrast, Christchurch rose 0.5%, and Hamilton and Dunedin both saw gains of 0.8% over the month.

CoreLogic chief property economist, Kelvin Davidson says although the national declines over April and May have been very small, the shift in the market is clear to see.

"In the past few weeks we've seen a raft of regulatory changes, including the abrupt scrapping of first home grants, the near-term easing of the LVR rules and the introduction of debt-to-income caps.

“With mortgage rates tipped to remain high for a while yet, it's no surprise the market has lost a bit of the momentum we had been seeing through the early part of this year. Forthcoming tax relief for households is unlikely to change that," he says.

"An important factor still in play is the high stock of listings on the market, and the associated shift in bargaining power towards buyers, which is subduing prices.”

CoreLogic also estimates the shortening of the Brightline Test from July 1 could see as many as 50,000 or so properties benefit to some degree from reduced risk of having to pay capital gains tax, which could see more listings coming to market. “Of course, only a portion of those properties will actually be put up for sale,” Davidson says.

"On another note, borrowers who have faced higher interest rates as their previous mortgage deals come to an end have coped well with tight monetary policy so far, thanks largely to the strong labour market. Looking ahead, a little less job security could see housing activity and prices remain fairly subdued," he says.

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