If something goes wrong and we DON'T see mortgage rate cuts within the next 12 months, there's going to be some disappointed people out there.
Latest monthly figures - these for March - show that comfortably over half of the new fixed rate term mortgage money taken out in the month was for terms of a year or shorter. This is a continuation of a fast-developing trend since the start of the year.
People are backing that there will rate cuts.
The RBNZ is indicating that it won't be cutting the Official Cash Rate till probably May of next year - but the financial markets see an earlier start than that, with current wholesale rate pricing suggesting the first OCR cut could be as early as October THIS year.
Time will tell, but clearly those taking out mortgages now are looking to catch on to falling rates just as soon as they can.
The Reserve Bank (RBNZ) introduced the C71 data series, which details mortgages as they are actually drawn down and for what terms they are fixed for last year. It only goes back as far as 2021, but offers interesting insight into what the borrowers are thinking - and also shows to some extent what offers the banks have been pushing at various times.
So, what of the latest figures?
In March 2024 owner occupiers took out $4.28 billion worth of new mortgages, up from $3.483 billion in February.
Of the $4.28 billion, some $1.801 billion - 42.01% - of all the new owner-occupier mortgage money, was fixed for a year. That's the highest share for one-year fixed since June 2021. In December 2023 just 27.7% of new mortgage money for owner-occupiers was fixed for a year. But since the start of the year the share has been growing quickly by the month.
The 'short is good' sentiment might just about have peaked in February when the previously unfashionable six-month term was applied for some 15.1% of the mortgage money - a historical high in this, admittedly short-run, data series. It fell to 12.6% in March 2024 - but that's still a lot higher share than was seen previously.
Longer terms are now soooo out of fashion. The share of owner occupier lending on two-year and three-year decreased to historical lows - for this series - of 10.2% and 3.3% respectively.
The share on 18-month fixed terms - having risen fast but then dropped in February - increased from 9.8% to 13.0%.
The share of owner occupier loans on floating terms decreased to 17.5% in March 2024 after an eight-month high of 19.5% in February 2024.
As the RBNZ outlines in its key points summary, in terms of the investors, new residential investor mortgage lending rose to $1.3 billion in March-24.
In common with the owner-occupiers, the one-year fixed terms continue to be the most popular, making up 45.7% of new lending, up from 41.4% in February.
The share of new residential investor lending on six-month fixed terms decreased from a previous series high of 19.9% in February to 16.9% in March 2024. The share of all terms above 18-month fixed terms decreased or remained unchanged.
RBNZ: The mortgage holders are all waiting for you. No pressure!
20 Comments
Yep, going short because I want cash available in 12 months if the property market collapses to affordable prices.
Also not convinced going longer will get better returns. I think the expectation of decreasing interest rates is still far from a done deal. Domestic inflation is embedded; stinginess over wages may actually worsen the problem as our best workers leave and productivity falls. Meanwhile our currency is at risk due to our elevated trade deficit and black swan risks ranging from war in Taiwan to precision fermentation breakthrough.
There seems that after a period of a few years of exceptionally low interest rates during the Covid period, there seems to be a perception held by many that we are simply in a passing phase of high interest rates and that these are going to return towards the 2020-21 levels.
In June 1998 RBNZ began recording banks' average interest rates.
Since 1998, the banks’ average interest rate for a floating rate is 6.90%. The minimum average floating interest rate was 4.50% recorded in October 2020. The maximum average interest rate was 11.20% in June 1998.
Since June 1998, the RBNZ average two-year fixed rate is 6.47%. Between 1998 and 2023, the minimum two-year fixed rate observed was 3.50%, which occurred in November 2020 when the OCR was at a (emergency) historical low due to Covid. The maximum banks’ average two-year fixed rate was 9.80%, recorded in June 1998.
Yes, we are likely to see some fall in interest rates in the next 12 months, however, to expect interest rates to fall to levels even beginning with a "3", or quite likely even a "4", will not be consistent with the norm over the past 25 years.
Spot on. People have forgotten what “normal” is. Even when emergency low rates arrived with covid, the rates were still in abnormally low GFC recovery phase. I can’t see mainstream mortgages below 5% for quite a while. Before the black swan GFC/Covid low rate period you have to go back to 60s for those rates. So it will also be a long time before significant capital gains occur
How much would have been enough, Speedmax?
Should the RBA have also caused a Recession?
Like the RBNZ has?
Put lots out of work?
And crashed the economy that'll be a few years before we rebuild back to where we were?
While forcing the government to borrow even more money because tax receipts have crashed?
If it ain't viable, it ain't viable, we are only back to more normal cost of debt. Perhaps people living in the fantasy of near endless free debt will finally wake up to the fact they were deluded. Perhaps they may even value the security of a good job again as well.
Contrary to popular opinion, interest rates will not go down in the future, and have a very good chance of actually going higher.
in any event the days of 3% mortgages are gone forever. NZ has a history of high interest rates especially kept that way to prop up NZ dollar. Low interest rates will drive our dollar down to joke levels which makes imports dearer, creating inflation and higher interest rates again.
On the balance of probabilities interest rates will drop a mere half to one percent, , and that will only be as a result of increasing slowing of the economy and higher unemployment,
This is what the future holds, and all bets to the contrary welcomed.
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