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Mortgage Calls: When Will Borrowers See Value In Long-Term Rates Again?
Anan Zaki, Business reporter
Households are set to make big calls about their mortgages this year, as they weigh up their options amid falling interest rates.
Property research company CoreLogic says four out of five borrowers kicked off the new year with either a floating mortgage rate or a fixed term of less than 12 months.
For new loans, only 10 percent were fixed for longer than 12 months, whereas a year ago it was at 51 percent.
The share of new loans on floating rates - which tend to be higher than fixed rates - has risen from around 17 percent a year ago to 28 percent.
CoreLogic said it was evident in existing loans too, with the share of debt on floating rates up sharply to 14 percent - the highest level since 2020.
Chief property economist Kelvin Davidson said borrowers have been keen to take advantage of falling mortgage rates as the Reserve Bank cut the official cash rate.
But he said the most intriguing aspect of the mortgage market this year would be to see when borrowers would again see value in long-term rates.
"The answer to that will be a decision for each borrower to make, but there is certainly a sense that most of the Reserve Bank's eventual full monetary policy easing has already been factored in to some current mortgage rates - or in other words, those longer-term rates might not fall much further," he said.
David Cunningham - chief executive of mortgage broker Squirrel - said it would not take much for longer-term rates to become popular again, currently hovering around the mid-5 and early 6 percent mark.
"In the last 10 or 15 years you've had fixed rates generally in a 4 to 5 percent range so when we see those 2, 3, 4 and 5 year fixed rate below 5 percent, I think it starts to become a viable option for people," he said.
Cunningham believed some rates could start falling below 5 percent in the next three months.
He said the rise in floating interest rates was a little surprising, but borrowers were happy to take the short-term pain of higher servicing costs for long-term gain.
Loan Market mortgage advisor Michelle Isemonger warned of the risks that came with floating interest rates.
"There's always risks that come with floating. Your repayments are going to be higher than what they would be if they were fixed," she said.
But Isemonger said more borrowers were taking the risks.
"There's a lot pointing towards the interest rate coming down, so people are taking that gamble. And it is a gamble because you really just don't know what's going to happen, and the biggest consideration really is that your repayments could go up."
RNZ
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