Bank switching by mortgage holders hits record high amidst attractive floating and short term rates

Just over $2 billion of mortgage debt changed hands between lenders in December – a record amount since at least 2017. Photo / Alex Burton

Bank switching surged in December, as mortgage holders shopped around at a record rate for cheaper debt.

Just over $2 billion of mortgage debt changed hands between lenders (including non-banks) during the month – a record amount since at least 2017 when Reserve Bank records began.

The $2.1b represented a quarter of new mortgage lending in December – a portion just a percentage point shy of the record high.

Loan Market mortgage adviser Bruce Patten believed the falling interest rate environment prompted people to change banks to get better deals.

Reserve Bank data shows the level of switching between lenders rose throughout 2024, as interest rates fell.

Patten said he saw a similar phenomenon around the time of the Global Financial Crisis.

He said some borrowers, who had fixed their debt at longer terms, were breaking their loan agreements to change bank.

While this involves the borrower paying their bank a break fee, and possibly returning any cash incentive paid by the bank, Patten said the cost of making the change stacked up for some borrowers chasing lower interest rates.

The fact increasing numbers of borrowers have in recent times been floating their mortgages or fixing them for short durations, has also made it cheaper and easier for many to switch.

For example, a borrower might be less inclined to bank hop if the various parts of their mortgage come up for renewal at around the same time, rather than parts only maturing in, say, a year or two.

The popularity of floating rates or shorter-term fixes rose during the latter half of 2024, as borrowers seemingly became increasingly confident material interest rate cuts were around the corner.

They appeared happy to pay more for floating or shorter-term rates, in the hope they’d be able to lock in much lower longer-term rates in the near future.

In November, a massive 47% of the new mortgage debt issued by banks was on floating rates – by far the highest portion since at least 2021, when records began.

A further 46% of new mortgage debt was fixed at six months or a year.

CoreLogic NZ chief property economist Kelvin Davidson agreed the way people were restructuring their mortgages certainly enabled them to switch.

He also questioned whether coming off a period of high inflation and high interest rates, into one with rising unemployment, had pushed borrowers to go the extra mile to save what they could on their financing costs and be tempted by cash incentives offered by banks vying for new business.

Patten acknowledged there wasn’t a great deal of competition between banks, which have been maintaining their profit margins while cutting interest rates.

Asked whether the public and political focus on banking competition may have prompted some borrowers to shop around more, he said it had brought the issue to the front of some people’s minds, but it was hard to know whether they were acting on it.

Patten said the popularity of various personal finance-related groups on social media had enabled people to compare notes about the deals they were getting from various banks.

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the Parliamentary Press Gallery. She specialises in government and Reserve Bank policymaking, economics and banking.