Bank bins seven-year fixed-rate loans

BNZ has stopped offering sevenyear fixed-term home loans, saying there was no demand for them.

The loans, with an interest rate of 5.2 per cent, were the only seven-year fixed term loans offered by a bank, but BNZ spokesman Sam Durbin said no customer had asked to take one out since 2018.

The longest fixed-term home loan duration from BNZ’s big bank rivals was five years, with rates varying from 2.99 per cent to 3.99 per cent.

Longer-term home loans have not been popular after more than a decade of falling interest rates, and people who took up 10-year fixed-term home loans from TSB in 2015 would have lived to regret it.

TSB no longer offered 10-year fixed-term loans.

‘‘In a rising interest rate market, taking a five-year option isn’t probably a bad choice,’’ mortgage adviser Karen Tatterson from Loan Market said. ‘‘But we have been a declining interest-rate market.’’ the

Just before the global financial crisis struck, the Reserve Bank’s official cash rate, which influences mortgage rates, was

8.25 per cent.

By March 2009, it had fallen to

2.5 per cent, and by March 2019 it had fallen to 1.75 per cent. The Reserve Bank cut it further in response to the impact of the Covid-19 pandemic on the economy, dropping the OCR to just

0.25 per cent.

Durbin said BNZ removed the seven-year home loan to simplify its product range.

In January 2005, Reserve Bank figures show the average oneyear home loan rate for new borrowers was 7.64 per cent. But rates were on the rise, and by June 2008, it was 9.45 per cent.

Even without the past decade of training to accept shorter-term home loans, few borrowers thought forward five or seven years, Tatterson said.

‘‘Mentally, we are always looking at the best rate, which tends to be the shorter-term rates,’’ she said.

‘‘We are such a transient society that we don’t tend to lock in a long term because we don’t think we will be in the house for seven years,’’ she said.

Investors were more likely to look at longer-term rates when they were locking in interest-only loans, she said.

Despite bank economists forecasting interest-rates to rise in the medium-term, interest in longer-term mortgages remained weak, Reserve Bank of New Zealand figures showed.

Of the $306 billion of bank lending secured by mortgages, just $21 million is in fixed term loans with durations of five or more years.

In all, $265b is in fixed term loans, and $41b is in floating rate loans.