Kiwi homeowners floating in a world of uncertainty - Editorial

In November, a massive 47% of the new mortgage debt issued by banks was on floating rates. Photo / 123rf

New Zealand mortgage holders are increasingly banking on better days ahead despite rising global tensions and uncertainty.

The Reserve Bank cut the OCR by an expected 50 basis points to 3.75% on Wednesday.

It also signalled its intention to cut it by another 25 points on two or three occasions (including in April and May) to 3.25% or 3%.

With a whopping 94% of all new mortgage debt issued in November either floating or fixed for a year or less, financial relief is now finally on the way for many.

Banks have also moved quickly - many in advance - to pass savings on to customers.

The popularity of floating rates or shorter-term fixes rose during the second half of 2024, as borrowers became increasingly confident of this week’s cut.

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. About half of the country’s stock of mortgage debt is also due to be repriced within the next six months.

Borrowers are understandably keen to ride the downward wave and make the most of falling interest rates, opting to float towards better days ahead.

But even Reserve Bank Governor Adrian Orr has issued a warning on that front, advising mortgage holders not to hold their breath for substantive cuts to longer-term mortgage rates.

That’s because there’s a suite of international factors putting extra upward pressure on the wholesale interest rates that affect longer-term mortgage rates.

In other words, feel free to float, but keep your eyes on foreign shores to know when to lock in a good rate.

Orr told reporters after Wednesday’s cut that the “slightly longer-term risk” was the geopolitical fragmentation the world was seeing.

Think the Ukraine peace deal, American President Donald Trump’s tariffs and the Cook Islands deal with China.

While New Zealand is geographically isolated, we’re not completely removed, and such global upheaval and potential disruption adds a layer of uncertainty to economic forecasting.

On the international front, there’s no telling what 2025 will hold.

Economists are confident rates will be cut further, and Orr has sent a strong message to banks to do their part in helping consumers.

He told Newstalk ZB’s Mike Hosking banks need to “look at their own margins and chase and compete for customers much more vigorously”.

As it stands, there’s every reason for borrowers to feel they can confidently float on for the next few months.

But with a world in unrest, it’ll pay to keep an eye on global manoeuvrings to know when it’s time to come back to solid ground and fix.

Sign up to The Daily H, a free newsletter curated by our editors and delivered straight to your inbox every weekday.