Mortgagors switch to fixed loans

When first-home buyer Pippa Jefferies took out a mortgage recently, she decided to fix the bulk of it.

She liked the security the terms offered, especially as it seemed changes were ahead.

‘‘Given that at the time interest rate increases were on the horizon, being new buyers we wanted to get settled in before exploring other options.’’

It seems others have the same idea. New Zealand homeowners are locking in fixed-rate mortgages at an increasing rate, concerned about the prospect of looming interest rate rises.

ANZ chief executive David Hisco noted the shift when the bank released its results for the three months to the end of December. He said it had put pressure on the bank’s interest rate margins.

‘‘More New Zealanders are switching from floating to fixed home loans, taking advantage of lower interest rates ahead of possible changes in market conditions,’’ Hisco said.

When ASB released its first-half profit, chief executive Barbara Chapman said her bank had noticed customers’ preference for lower-margin fixed-rate loans.

ASB chief economist Nick Tuffley said people were predominantly fixing for shorter terms.

Those who wanted the certainty of a longer term had to pay a lot more for the privilege now than they once did.

‘‘People tend to eye up the extra premium they’ve got to pay to get the long-term fixed rate is relatively high,’’ Tuffley said.

"People are seeing fixed rates increase and thinking they had better get in." Banking expert David Tripe

‘‘We’re in an environment where long-term rates have lifted substantially but short-term not so much. The tradeoff is that much bigger than it was.’’

He said it was part of a longerterm shift back to fixed mortgages.

In 2014, 44 per cent per cent of home loan lending was floating. Now, that figure is 39 per cent.

In 2008, at the peak of the last interest rate cycle, it was only 26 per cent.

‘‘Fixed rates do give more protection against further rate increases,’’ said Massey University banking expert David Tripe.

‘‘That would be the rationale of moving to fixed rates. People are seeing fixed rates increase and thinking they had better get in, in case rates rise. ‘‘

The official cash rate is not expected to move this year, which should keep short-term borrowing costs in New Zealand low.

But international factors play more of a part in determining the long-term rates New Zealanders pay, and are pushing interest rates up.

Mortgagerates.co.nz shows that one-year loans are available for 4.39 per cent but the median in the market is 4.85 per cent.

For five-year terms, the median rate is 5.8 per cent.