Home Loan Customers Rush to Fix Rates as Market Changes

Home loan customers are increasingly opting for fixed-rate mortgages as interest rates begin to rise. The ANZ, New Zealand’s largest bank, has reported a notable uptick in inquiries from borrowers wishing to switch from floating to fixed rates. In recent months, many homeowners had selected floating rates, anticipating further decreases in interest costs.

In October 2023, lending on floating home loans reached $51.6 billion, an increase from $47.9 billion in September and $42.7 billion in October of the previous year. The Reserve Bank of New Zealand cut the official cash rate (OCR) in its last update, yet retail home loan rates have begun to climb. As wholesale rates adjust, banks are revising their offerings for home loan borrowers.

The Reserve Bank signaled a strong possibility of another OCR cut, but concurrent movements in wholesale rates have raised concerns. Gareth Kiernan, chief forecaster at Infometrics, noted that the market’s reaction to the latest monetary policy statement has been “overcooked.” He predicts that fixed rates may not rise significantly until the second half of 2024.

Kiernan elaborated that unless the recent surge in swap rates reverses, expectations for one- to two-year rates approaching 4 percent appear increasingly unlikely. He also suggested that four- and five-year rates could trend upward sooner but would not see substantial increases before mid-2026.

In response to these developments, Anna Breman, governor of the Reserve Bank, emphasized the need for caution regarding future rate predictions. In a statement on Monday, she indicated that while there is a slight chance of another rate cut soon, the OCR is likely to remain stable at 2.25 percent for an extended period.

“Financial market conditions have tightened since the November decision, beyond what is implied by our central projection for the OCR,” Breman said. She reiterated that monetary policy is not predetermined and explained that the Monetary Policy Committee (MPC) meets seven times a year to reassess economic conditions.

Despite the volatility in the market, David Croy, an economist at ANZ, maintained that his outlook for wholesale rates remains unchanged. He had anticipated that 2026 would be characterized by higher interest rates, particularly in the two- to five-year segment of the swap curve. Croy acknowledged that recent fluctuations have accelerated some expected increases, but he believes that swap rates may decline slightly in the coming weeks.

The holiday season often prompts investors to seek opportunities, and many global markets, including New Zealand, provide attractive options. As borrowers weigh their choices, the shift towards fixed-rate mortgages reflects a broader strategy to manage financial uncertainty in a changing economic landscape.

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