Longer-term mortgage rates fashionable again

Mortgage borrowers nearly 18-month love affair with floating and short-term fixed rates appears to be all but over.

The latest RBNZ data series on lending fully secured by residential mortgages shows the majority of borrowers in March had a preference for one- and two-year fixed terms.

Nearly 40% of owner-occupiers uplifting new mortgages in February took them on floating terms, but just a month later that had dropped to just under 24%.

Similar to the almost overnight rush by borrowers to short-term ratesin anticipation of lower interest rates when the RBNZ started dropping the OCR, the turnaround to longer-term fixed rates has shown up in data at a similar speed.

The OCR sits at 3.5% and the Reserve Bank has indicated another drop at the end of the month to 3.25% but some economists are predicting a total drop to 2.5% could be on the cards by the end of the year.

While many banks are offering one- and two-year fixed rates at 4.99%, the economists say more cuts in the floating and six-month rates are likely but there won’t be much movement in two-year and longer terms, even though the global economic outlook is in turmoil because of US President Donald Trump’s tariff war.

One- and two-year fixed rates have traditionally been popular with home loan borrowers and in March nearly 60% of owner-occupiers took these rates for new mortgages. They uplifted $5.7 billion of new mortgages. Of this 30.1%, or $1.7 billion, was on one-year fixed rates and 28.7%, or $1.6 billion was on two-year fixed rates.

Their share of new lending on floating rates dropped by a considerable 15.9% from 39.8% to 23.9%, while borrowing on six-month terms dropped by 17.5% to 11.4%.

Lending to investors rose to $2.2 billion, up from $1.7 billion in February. One-year fixed terms accounted for 31.1%, up 9.4% from 21.7% the previous month.

Floating terms had the biggest drop, down 17% to 26%, while the share of two-year fixed terms rose 11.6% in February to 26.5% in March. During the month 97.3% of all investor lending was on floating or at fixed rates for two years.

Total new business lending was $2.9 billion, down 2.9% from $3 billion in February. However, this was a rise of $144 million from March last year.

Data for the RBNZ's C71 series goes back to 2021 and shows what rates mortgage money goes into.