‘Rate wars’ puts long-term mortgage-fixing back in the frame

"The fixation with short fixes might be about to come to an end," says CoreLogic NZ’s Kelvin Davidson. Photo / Fiona Goodall

Floating and short-term mortgage rates remain overwhelmingly popular with home owners but a shift is expected as we near the bottom of the interest rate cycle, say experts.

Kelvin Davidson, CoreLogic NZ chief property economist, said in a statement that “rate wars” suggests borrowing behaviour will be something to watch closely.

CoreLogic NZ’s March Housing Chart Pack, which looked at Reserve Bank data, showed 90% of borrowers chose a floating or short-term fixed rate (six to 12 months) in January.

“Around 71% of New Zealand’s existing mortgages by value are currently fixed but due to reprice on to a new mortgage rate soon, and another 12% is floating. Over the past two to three years, these repricing events have generally meant a higher mortgage rate for borrowers,” Davidson said.

“However, that situation has now turned around again, and with rate wars recently emerging among lenders offering lower 2-3 year fixed rates, we could start to see a shift back towards them pretty shortly.

“In other words, the fixation with short fixes might be about to come to an end.”

The big banks are all currently offering two-year fixed rates at 4.99%.

Squirrel founder John Bolton told the Herald previously that rates haven’t got a lot further to fall.

He said rates at the bottom will stabilise between 4.50% and 5%.

“Those six-month and one-year rates will drop below 5%. And I’d expect to see that happen between now and June,” Bolton said.

“Those longer-term fixed rates are largely priced in ... so you’re not really going to see those move at all.

“The key message is 4.99% for two or three years fixed is actually a really attractive rate.”

Bolton said they were getting a lot of clients fixing for two and three years.

The Reserve Bank’s latest Official Cash Rate (OCR) track implies a 25-basis-point (bps) cut in both April and May to 3.25%.

Already 175bps have been cut from the OCR since July last year when it was sitting at 5.5%.

Davidson said he predicted 2025 is likely to see a subdued upturn in the property market.

“We’re just at the beginning of seeing the first clear signs that the downturn in property values has come to an end.

“Nationally, property values could rise further by around 5% this year.”

He said the market is also unlikely to see an immediate switch in power from buyers to sellers.

“The stock of listings available to purchase is currently at its highest level for this time of year since at least 2018, which means buyers can still take their time to try and achieve a deal in their favour.

“For investors, lower mortgage rates will make new property purchases more affordable, which have required significant top-ups from other income sources over the past couple of years.”