Q: Hi Liam, in the US they have up to 30-year fixed mortgage rates. My understanding is that in some cases there are no break fees from the outset, should you choose to sell or refinance. Or there is a sliding scale of fees over a five-year basis then no fee. None of the fees which are charged are as prohibitively expensive as here. Why are such products not offered here? - Bruce
A: Where’s the fun in fixing for 30 years? What would Kiwis talk about at barbecues and worry about at night if we didn’t have a mortgage rate to refix? Our mental health? Relationships? Perhaps we’d pay more attention to investing and saving.
Seriously though, the New Zealand obsession with short-term fixed mortgage rates is something of a cultural quirk. I suspect we all quite enjoy it in a masochistic way.
One technical reason for the inability of local lenders to provide longer-term fixed mortgages is that we just don’t have the depth of market in this country to fund them.
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In other words, there just aren’t enough large, long-term investors seeking fixed investment returns across that timeframe. Banks have also made the point that there isn’t much demand here for longer terms – although that seems a bit self-fulfilling. We’re very much conditioned to go for six-month, 12-month or two-year rates because that’s where the banks seem most competitive and it’s usually where the best bargains are.
Some people may recall that local banks did offer seven-year fixed rate terms a few years ago – but they weren’t popular. Clearly, we just aren’t keen to be locked in for the long haul despite the financial security that would provide.
We don’t seem to be quite as bold as the Aussies though, either.
In Australia, the bulk of mortgage holders stay on floating rates. They prefer to take their chances on the ups and downs of the market in that optimistic Aussie way.
Of course, floating rates, relative to fixed, have historically been cheaper there than here.
Again with the self-fulfilling prophecy ... it’s the nature of markets that the best bargains land where the bulk of the competition is focused.
Another benefit for the Australian economy is that the interest rate moves of the Reserve Bank of Australia have a much faster impact.
We Kiwis are hooked on short- and mid-term fixed rates and are kind of stuck with them. But some more choices would be nice. A market opportunity for a new player perhaps? Don’t hold your breath!
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to my weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.
