Borrowers switch from floating to fixed rates at brisk clip

A month is a long time in the home loan world.

Between November and December last year new mortgage lending switched swiftly from floating to six-month terms by borrowers taking out new loans.

In that month, the six-month term rose to the top of the tree and the floating rate sank like the proverbial stone, the latest Reserve Bank data shows.

Under its new lending fully secured by residential mortgage series, the figures show owner-occupiers taking out six-month fixed mortgages rose from 15.3% in November to 38.1% in December – a new high for the data series which has been complied only since 2021.

This equated to $2.375 billion of the $6.237 taken out in new loans by owner-occupiers, an increase of 17.3%. 

Those selecting floating terms dropped by 22% from 45.5% to 23.5%.

Borrowers selecting either floating or short-term fixed rates of up to a year made up 90.1% of new owner-occupier mortgages. Terms of 18 months or more only accounted for 9.9% of lending.

Residential investors were not far behind with lending on floating rates dropping by 25.9% to a 24.8% share. 

Of the $2.5 billion lent, $1.106 billion was on six-month interest rates. Six-month terms accounted for 44.2% of new lending, up 13.9% in November – a new historical peak.

The share of new residential investor lending increased for most terms except for floating terms and one-year fixed.

Total monthly new residential lending increased to $8.9 billion in December, up 17.4%

from $7.6 billion in November. Compared to December 2023, this was up 37.6% from $6.4 billion.

New residential lending on fixed interest rate terms increased to 75.7%, up 23% from November.

Across the board – residential, business and agriculture – new lending in December hit $13.6 billion, up 24% on the $11.1 billion lent in December 2023.

The biggest monthly percentage change was lending to business, which fell by $1.1 billion to $2.4 billion in December, down 23.8% from $4.4 billion in November.

The rapid rise in six-month lending came after the Reserve Bank dropped the OCR to 4.25% at the end of November and indicated another 50 basis points cut this month and possibly others to come.

Economists are picking another two 25 basis cuts to take the OCR down to 3.5% near the end of the year.

In anticipation of the OCR cut, the major banks have been lowering their fixed interest terms, with Westpac lowering its three year rate to 4.99%.