Borrowers still exposed to rates rises

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Most borrowers will feel the impact of Official Cash Rate rises not long after they start, the latest Reserve Bank figures reveal.

Tuesday, March 4th 2014, 5:55AM

by Susan Edmunds

It is widely expected that the Reserve Bank will start to increase the OCR from this month.

Some economists have suggested that the hiking cycle should already have started – and that by delaying it, the Reserve Bank could miss out on some of the impact as borrowers shield themselves by moving to fixed interest rates.

Just under 60% of lending is now on fixed rates, compared to 45.08% in 2012.

During January, there was growth of $2.7 billion in fixed-term mortgages and decline of $1.8 billion on floating rates.

But Reserve Bank data shows that almost 85% of total home loan lending is on terms of less than two years, or just under $96.5 billion.

Only $34 million in lending is on fixed terms of five years or more. 

BNZ chief economist Tony Alexander said borrowers would not be tempted into the longest-term fixes at the moment because the jump between the floating and five-year rate was so high.

But he said if the banks were to offer a five-year rate of about 6.5%, rather than the roughly 7.2% on offer, he would recommend borrowers get in “boots and all”.

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