Did somebody say interest rate cuts?
Well that's what new mortgage customers are hoping that the Reserve Bank (RBNZ) is going to be saying very soon - judging by the recent behaviour.
New monthly figures from the RBNZ show that in May about one in six mortgages for owner-occupiers and one-in-five investor mortgages were taken out for a six-month fixed term rate.
That's a new high in a data series that admittedly has only been running since 2021.
The RBNZ's latest figures outlining the fixed rate term durations of newly uplifted mortgages show that for owner occupiers taking up mortgages in May the share on six-month fixed terms rose to a new historical high of 17.1%. Meanwhile for investors, the figures for six-month fixed terms rose from 18.7% to 21.7%.
It should be immediately stressed that the one-year term remains the most popular. But what is remarkable about the appetite for the six month terms is that it's developed very suddenly. Go back to May 2023 for example and just 3.4% of new owner-occupier mortgages were taken out on six month fixed terms.
As referred to above, the 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.
These are pivotal times for interest rates. With the Reserve Bank (RBNZ) reviewing the Official Cash Rate (OCR) on Wednesday, July 10 and then the Consumers Price Index (CPI) inflation figures for the June quarter being released a week later on July 17, we will soon know more clearly what the chances are for meaningful mortgage rate cuts sooner or later.
The RBNZ of course has been pushing back against speculation of rate cuts soon, with it forecasting that the OCR won't be cut until the second half of NEXT year.
But that's not what the financial markets have been speculating. They've been more than fully pricing in an OCR cut THIS November. In addition the financial markets see about a 50-50 chance the first OCR cut will come in October, while there's now even a better than quarter chance priced in for a first cut as soon as next month.
Little wonder then that particularly since the start of this year and increasingly so in recent months, the mortgage customers have been taking the punt that rate cuts will come sooner rather than later and therefore opting for short term fixed mortgages - even for periods, such as six months, that were previously perennially unfashionable.
At the same time this has meant that longer terms that were 'hot' at one time have become currently unfashionable. However, the marked reductions in take-up of longer duration fixed rate mortgages that we've seen in recent months did tail off somewhat in May - with some of the longer term durations seeing increases. Clearly not everybody's waiting and holding their breaths for imminent OCR cuts.
According to the RBNZ's summary of the latest data, total residential mortgage lending was $7.1 billion in May, up 18.5% from $6 billion in April.
The share of total new residential lending on fixed interest rate terms increased to 82.3%, up from 81.9% in April.
New owner occupier lending increased to $5.2 billion in May.
As stated above, one-year fixed terms continued to be the most popular term of owner occupier lending, accounting for 36.5% of all new lending. But this was down from 39.4% in April. The 18-month term, which was also previously unfashionable, but has enjoyed recent popularity, saw an increase in percentage uptake in May to 16.5% from 14% in April.
The share of owner occupier lending on fixed terms above 18-month fixed terms increased or held steady. For example, the share of two-year fixed increased to 8.8% from 8.6%, and the share of three-year fixed terms increased to 3.1% from 2.8%. Four-year fixed terms held steady and are at a historical low at 0.3%.
New residential investor mortgage lending rose to $1.8 billion in May. one-year fixed terms continue to be the most popular, making up 40.2% of new lending, though down from 45.0% in April24.
The share of 18-month term increased from 8.9% to 11.9% in May, whereas two-year fixed terms declined from 7.8% to 5.9%.
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