Huge pile of mortgage money on short terms as borrowers wait for interest rate drops

Five days ago, 51.5% of the total mortgage pile was either floating or on a fixed rate term of 12 months or under, Reserve Bank data shows. This number has been increasing in the past year.

During October the amount of money on fixed rates dropped by $1.356 billion, which is the biggest decline in a single month since December 2011.

Lenders wrote $7.5 billion of new mortgages in October and 28% of borrowers opted to take floating rates, 20% fixed for six months and 42.% fixed for one year.

The amount of money on floating rates increased by $2.966 billion, which is the largest increase in a single month since June 2011, while the amount of money on fixed rates is the highest since March 2020.

The total amount of mortgage money on October on floating interest rates was $42.744 billion and the amount on fixed rates was $323.317 billion.

Reserve bank data shows banks' total housing lending stock increased by $1.58 billion in October to a total of $360.58 billion. The housing lending annual growth rate rose from 3.7% to 3.8%

Borrowers have been rushing to floating and short-term fixed rates for most of this year in the hope they can eventually bring down their mortgage repayments substantially as the OCR drops.

Mortgage advisers have been warning that with a two month wait until the next OCR review in February, borrowing on floating or short-terms rates can be a fool’s game as the cost of missing out on some of the lower two-year rates can be costly.

Now is a good time for borrowers to weigh up where they want to be and pick a strategy that suits them in terms of flexibility and rates, advisers say. Waiting until the bottom of the market could be expensive.

While lenders such as ANZ and Squirrel Mortgages expect interest rates will fall to about 5% next year, they say there will be a mixture of forces on mortgages and not all of them will be down.

If borrowers sit on the floating rate waiting for lower long-term fixed interest rates, any savings they make can quickly come unstuck. Fixing for even six or 12 months is a far better option while the OCR is lowered, according to advisers.