Overview
- Refinancing pressure is rising: A growing share of NZ mortgage holders will face higher rates over the next 6–12 months, even with the OCR on hold, as market-driven mortgage rates increase.
- Shift in borrower behaviour: As short-term rate advantages fade, borrowers are moving toward longer fixed terms (notably two-year fixes) to regain repayment certainty.
Growing numbers of NZ mortgage holders are set to face higher financingcosts over the next six to 12 months, after a previous period where they gotused to lower rates at each fixed loan roll-over.
New analysis from Cotality NZ shows borrowers who benefited from fallingmortgage rates and short-term fixing strategies over the past two years or soare entering a more difficult financing environment as market interest ratesrise.
Cotality NZ Chief Property Economist KelvinDavidson said the change marked a significant turning point for mortgageborrowers after an extended period of falling rates.
“Over the past two years, many borrowers were rewarded for staying onshort-term fixed rates because they could repeatedly reprice onto lower rates,”he said.
Although the OCR has not changed (yet) so far this year, wholesalefunding costs, inflation expectations and geopolitical uncertainty have allpushed market mortgage rates higher in recent months.
Mr Davidson said the increase in market rates was already influencingborrower behaviour.
Reserve Bank lending data shows floating and short-term fixed lending hasbecome less popular over the past six months, while the two-year fixed rate hasbecome the single most popular lending term, accounting for 29% of new lendingin March.
“Borrowers are increasingly prioritising repayment certainty again asrefinancing conditions become more uncertain,” Mr Davidson said.
“Many households that previously focused on staying flexible are nowweighing up whether rates could move higher over the next one to two years.”
The analysis also found borrowers who fixed on very short durations morerecently are already beginning to face higher refinancing costs.
Homeowners who fixed for six months in October at around 4.8% would nowface a two-year rate (if they chose that term) roughly 30 basis points higherat 5.1%.
Mr Davidson said many borrowers had already missed the trough in mortgagerates.
“Current market pricing suggests more borrowers refinancing later thisyear are likely to move from older, lower fixed rates onto higher prevailingmarket rates,” he said.
The Reserve Bank’s stats shows that around 43% of existing debt isfloating or fixed and set to reprice within the next six months, exposing alarge cohort of borrowers to changing conditions.
Mr Davidson said the loan repricing cycle could increasingly have animpact on the country’s broader economic activity.
“Higher mortgage costs reduce disposable income and place additionalpressure on household spending at a time when economic conditions are alreadyfragile,” he said.
“That creates a more complicated environment for the Reserve Bank as itweighs inflation pressures against weaker growth and softer consumer demand.”
