It's the Great Reset. The great mortgage reset of 2025.
Over $200 billion worth of mortgages on either floating or short term fixed rates are up for a re-fixing in the first half of this year. That works out at an average of well over $30 billion a month.
Reserve Bank figures for the last month of 2024 show of the grand total of $369.546 billion of outstanding mortgages, $159.899 billion was fixed for six months or less and $42.8 billion was floating.
That's a combined total of $202.699 billion either fixed or floating that either must be, or can be, refixed before the end of June.
And it makes up 54.9% of the total mortgage pile, demonstrating how the country's home owners have been going shorter and shorter with their mortgage terms as expectations of interest rate falls have grown.
As the below graphic taken from the Reserve Bank's summary of the monthly mortgage figures shows, the 54.9% of fixed or floating mortgages up for a reset in the first six months of the year compares with a percentage of just 38% as of December 2023, and 32.3% in December 2022.
To look at a slightly longer timeframe, as at December 2024, a total of $304.139 billion worth of mortgages was up for a refix by the end of this year.
This means 82.3% of the current $369.546 billion mortgage pile will see an interest rate reset this calendar year. A year ago, in December 2023 the comparable percentage figure was just 66.6% and in December 2022 it was 59.5%.
What it means in practice is that the vast majority of the country's mortgages will be quickly responsive to whatever changes there may be to market rates in coming months.
As the move to shorter and shorter term mortgages has gathered pace, then so the homeowners have looked to become more and more nimble.
Looking at the figures for October 2024 through to December 2024 shows some major swapping between fixed and floating - and then back again.
In October there was $42.744 billion of mortgages on floating and $323.317 billion fixed (that's all terms, both long and short).
In November 2024 the amount on floating had blown out to $53.651 billion (highest monthly floating total since October 2016), while the fixed total had shrunk to $314.172 billion.
In December the floating total virtually shrank back to where it had been before, at $42.8 billion, while the fixed amount grew again to $326.746 billion.
For comparative purposes it's worth saying the grand total of all mortgages in October 2024 was $366.061 billion, rising to $367.823 billion in November, and $369.546 billion in December. So, it didn't grow by all that much during that three month period, meaning comparing the movements of figures within the totals is reasonably apples-with-apples.
In terms of trying to work out where the nearly $11 billion worth of mortgages that apparently went from fixed to floating and back, well, we can't exactly, based on the figures.
But what we can say is amounts of fixed rate mortgages up for refixing in between three and six months time blew out by around $8.5 billion between November and December, rising from $53.723 billion to $62.208 billion.
The Reserve Bank began cutting the Official Cash Rate (OCR) from the cycle high of 5.50% in August, with a 25 basis-point cut. This was followed by 50 point cut at the next review in October.
The last OCR review for 2024 was on November 27.
Ahead of that November review it was widely expected another 50 basis points would be trimmed from the OCR. This was duly done.
Now all eyes are on the first OCR review for 2025 on February 19. Reserve Bank Governor Adrian Orr was surprisingly explicit (compared with past Reserve Bank conventions) in his post-November review press conference in strongly indicating another 50 basis-point cut will be coming in February.
Assuming that comes to pass and we have a 3.75% OCR come February 20, those $200 billion-or so mortgage holders looking to refix by the end of June will need to work out a couple of things.
Firstly, how much lower will the OCR go? The Reserve Bank's November Monetary Policy Statement (MPS) implied the OCR might not go lower than 3.50% this year. But other economists are suggesting it will be 3.00% by the end of the year.
Secondly, how much lower may mortgages go? Cuts to the OCR do not guarantee equivalent cuts to mortgage rates, particularly not if banks have been cutting mortgage rates ahead of OCR reductions - and they have been.
So, plenty to think about.
While the rises in mortgage rates that began in the second half of 2021 in reaction to rising inflation have added considerably to some monthly interest bills, the levels of non-performing loans - while up - have not risen precipitously.
The Reserve Bank's monthly 'loans by asset quality' data series shows in December there was a $26 million increase in non-performing home loans, to a total of $2.16 billion.
In the whole 2024 calendar year the non-performing home loan total rose by $643 million (42.4%).
The $2.16 billion non-performing loans total represents 0.6% of the total outstanding mortgage pile.
While you have to go back to 2013 to find a non-performing loans percentage as high as 0.6%, the current figure is still well below the levels seen in the post-Global Financial Crisis 2009-2012 period when the non-performing percentages frequently hit 1.2%.
*This article was first published in our email for paying subscribers first thing Wednesday morning. See here for more details and how to subscribe.
27 Comments
And not 2 or 3% option in sight. Already many non performing loans everywhere and according to the RBNZ, the amount is set to double. Do banks continue to extend and pretend, or do they start for force sales and let, finally, true market discovery take place...
25 is the year the popcorn starts to burn.
I see prices stabilising this year. We're now starting to see interest rates that should underpin current prices. Auckland may have a bit further to drop, but the other cities, provinces and tourist centres, should do better going forward. The only possible fly in the ointment could be mild inflation returning but I don't see levels such as that seen in 2022 any time soon.
RBNZ publish the average weighted mortgage rate and business loan rate. At end November these were 6.35% and 7.12% respectively. We get December figures next Monday.
It is fair to assume given previous trends and current bank rates that the average mortgage and business rates right now will be a bit above 6%.
That takes the average mortgage rate back to March 2024 levels and the more quickly adjusting business loan average rate back to November 2022 levels.
Now, rates became restrictive around the end of 2022; that's when all the data started to turn south. In May 2023, we saw the start of serious job losses, benefit numbers growing, companies wobbling etc. The big 'snap' - the sudden acceleration in crap data - came in early 2024. By this point, total interest paid on mortgages was about $2bn per month - double what it was in mid-2019 and mid-2022 (it was a bit lower between these dates).
Now, we are still firmly in decline mode - negative job growth of around 1% yoy, unemployment numbers increasing at around 25% yoy, benefit numbers going up at around 8% yoy, company liquidations stacking up etc.
My point, if it wasn't obvious, is that if we are going to rely on lower rates for stimulus, then we probably need average weighted mortgage rates of around 4% and business loan rates of around 4.5% - that would take us back to late-2022 & late-2019 levels.
Now before anyone starts, I am not saying that we should rely on an OCR In the 2s for stimulus, or even that we could move that far from the Fed. But the alternative, superior approach - significant public investment and an expansion of the Crown balance sheet, is off the table because our idiot politicians have fenced themselves into a corner with commitments to fiscal (ir)responsibility.
This has to be significant for the economy. A huge number of people will become much better off in the next 6 months. Sure many of them may keep the repayments the same and smash their mortgage, but that debt reduction is also significant for the economy and consumer sentiment. I feel like we should get some good GDP growth this year.
I have a bridge to sell you
Now, we are still firmly in decline mode - negative job growth of around 1% yoy, unemployment numbers increasing at around 25% yoy, benefit numbers going up at around 8% yoy, company liquidations stacking up etc.
What fairy magic do you know of, or do you think willis and luxy can turn this ship around?
I see us bumping along the bottom, positive here negative their per Q, perhaps 0.5% positive for the year.
The problem is no one has any belief that NAct has a plan, thus people and business keep their horns pulled in...
Confidence is more contagious then a virus, so is fear.
He went to low, then he went to high, is he stupid enough to go too low again? or , my opinion not actually go low enough here to actually try to put a bottom in, its been my belief for a long time he will go low enough but only once he starts to panic about the housing market.
I think that we are not there yet, its when averages are down 1/3 or more from peak ... more then that and banks may need more capital.
In the next six months, let's say that the average weighted yield on mortgages drops to 5.5%. This would require RBNZ to drop rates more aggressively than planned.
What happens to disposable incomes?
By then mortgages will be around $380bn. So, 5.5% x $380bn / 12 = about $1.74bn interest payments per month.
That's about the same amount of interest payable as in January 2024 (5.9% x $359bn / 12) when conditions were firmly contractionary Mortgage interest payments got as low as $0.7bn per month in mid-2021!
Now, as we get back to borrowing, the banks will pump billions of credit into our economy. This will give us some stimulus. There is always a seller at the end of every chain of house sales after all. But, my view is that we are going to slide sideways for the next 6 - 12 months unless we see big falls in oil prices or major Govt investment etc. The idea that the economy will turn on a dime in a couple of months (as per RBNZ forecasts) seems outlandish to me.
Here's the total interest payable on loans by the way.
That seller at the end of the chain may be a bit more conservative then in the past as well....
Think of the credit created this way when investors where leveraging up their sites.
The mis-allocation of 100's of billions of funds against assets that produce low yields is now the albatross around our necks that will cause a lost decade. People will not want to clear that debt as it will often lock in loss, or they are scared they will never qualify for that loan again due to age and new DTIs.
The leaves have fallen off the money tree....
Like the OCR increase there's a lag between them and lowering inflation, we are only now feeling the effects of the first few OCR cuts, by Q3/Q4 we will feel the effects of these cuts. For me that's approximately $150 a week, this extremely cash will provide A LOT of relief to families and will be the fuel for GDP growth.
Except it will be on top of the the shopping they already do. That's the difference that could help a family save or invest $50-100 a week.
Or the differences that means on a summer trip to the beach they stop in at the fish and chip store instead of driving past.
Well don’t worry about bank profitability in the great refixing - margins over swap rates are still well above Oct 2023 and banks will continue to hold onto the bulk of those margins while throwing out some peanuts. More to the point are all the comments on articles coming from “supporters” of interest dot co dot nz. Going to be interesting after March how many sprukers will be able to afford registering and commenting
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