50 YEAR LOW: Fixed mortgages plummet to levels 'I've never seen before'

Kiwis love affair with record, low interest rates is continuing, banks say. Photo / Getty Images

Canny homeowners who can refix their mortgages are making savings of up to $7500 a year while Kiwis' love for the record low rates continues, banks say.

Increasing numbers of first-home buyers are also stepping on to the property ladder but those hoping to break existing fixed terms will be hit in the pocket.

One financial adviser who has been in the industry for 50 years says the fixed rates are "the lowest I've ever seen".

Meanwhile, economist Benje Patterson said the low rates could stimulate the economy in the face of further pain for some households as the recession deepens.

"We should not underestimate the stimulatory effect of low-interest rates – fixed mortgage rates currently sit at 2.5 per cent compared to 4 per cent this time last year.

"Putting that in perspective, if you have a $500,000 mortgage, you currently are paying $7500 less per year in interest, which is the equivalent of a $10,000 or $11,000 pay rise."

A spokesman for BNZ said New Zealanders' "love for fixed terms" was continuing.

"About 85 per cent of its home lending is on fixed terms, and there's strong interest in the shorter terms at the moment."

First-home buyers were more active and BNZ had fielded more inquiries about breaking fixed terms.

"This tends to happen as rates decline. In terms of break fees, the cost is specific to the individual customer's circumstances and reflects the cost of funding that the bank locks in when the rate is fixed, varying based on amount, time left and so on."

Fixed interest rates are on homeowners radar. Photo / Getty Images

Stefan Herrick from ANZ said most of its customers were also choosing fixed rates over the flexibility of floating rates.

"Generally, shorter terms are preferred up to two years as many customers believe interest rates may fall further."

An ANZ synopsis provided shows a $500,000 loan refixed from 3.85 per cent to 2.5 per cent for 12 months would yield savings of $79 a week.

Herrick said if a customer wanted to break, the potential cost was determined based on the particulars of the fixed loan (the dollar amount, interest rate and remaining fixed period) and comparing this with the prevailing wholesale interest rate.

The difference between these two when applied to the original loan determines the potential cost to the bank of repaying the loan early.

A Westpac spokesman said the bank had seen a lift in first-home buyer activity in recent months compared to pre-lockdown levels.

"First-home buyers made up 31 per cent of new lending applications in June, compared to 21 per cent in March and 22 per cent at the same time last year."

"We have a range of measures to help Kiwis into their first home, including Family Springboard, which allows customers to use equity in their family home to help them into a property of their own."

More customers had also been asking about breaking their mortgage.

"This is normal in a decreasing interest rate environment. Break costs reflect the cost to Westpac of securing wholesale funds at the time a fixed-term loan is agreed and will vary depending on each individual loan."

Rapson Loans and Finance owner Chris Rapson said he had been in the industry for 50 years and these were "the lowest rates I've ever seen".

Rapson advocates first-home buyers and paying down mortgages quickly and said it was a good time to buy in the current climate.

The cost of borrowing on $400,000 is about $10,000 a year in interest, so that equated to about $200 a week, he said.

"When you take into account rents are about $550 a week you should be paying off that mortgage at no less than $300 to $400 a week. Ultimately you want to own your own home and the only way to do that is to pay down the debt.

"So we believe people should be making a big effort to reduce the debt when you can because, as sure as God made little apples, interest rates won't stay low forever."

Ownit Rotorua manager and registered financial adviser Hayley Hubbard said their business had been "very busy – it's like Covid didn't happen".

She said they were possibly slightly busier than prior to Covid-19.

"There have definitely been plenty of interest rate inquiries and requests for break costs."

In most cases, breaking was not worth it due to the costs, but it depended on the person's situation.

First-home buyer inquiries were coming in "thick and fast", Hubbard said.

"Prior to Covid there were many people getting things like pre-approvals sorted, so those clients have definitely ramped up trying to move forward on pre-approvals.

"I guess the only downside of these low-interest rates, inquiries and applications is the lack of stock here in Rotorua in terms of house availability.

"In that first home bracket of $350,000 to $450,000 they are getting 15 to 20 groups turning up to open homes."

She said while it was great getting a lot of inquiries and applications; whether they would actually go through was a different story.