RBNZ: half of all mortgages to reprice over next six months
About half of all mortgages will reprice over the next six months, given the recent propensity for borrowers to fix for only six months at a time in the expectation of falling interest rates.
Thursday, February 20th 2025, 8:18AM
by Jenny Ruth
About half of all mortgages will reprice over the next six months, given the recent propensity for borrowers to fix for only six months at a time in the expectation of falling interest rates.
Ässistant Reserve Bank governor Karen Silk told journalists that the average mortgage rate currently is about 6.2% and that borrowers will be rolling over only rates of about 5.7%.
RBNZ’s latest monetary policy statement said that declining wholesale interest rates since its last statement in November in response to the falling official cash rate (OCR) and weaker-than-expected economic activity have fed through into lower mortgage and term deposit rates.
“The average interest rate on outstanding mortgages has now peaked and is expected to decline over the next 12 months as borrowers refix their mortgage interest rates at lower levels,” the MPS said.
The trend towards short-term mortgage fixing that began in early 2024 had intensified with about 90% of new mortgage flows directed towards terms of one year or less, with the six-month term being the most popular.
“This trend has increased the frequency at which mortgage rate repricing take place and hence the speed at which changes in mortgage rates influence household cashflows.”
Since the November MPS, the six-month fixed mortgage and term deposit rates fell by about 35 and 40 basis points respectively.
“The average interest rate on outstanding mortgages has now peaked and is expected to decline over the next 12 months as borrowers refix their mortgage interest rates at lower levels,”
Some households and businesses are continuing to experience financial stress but non-performing loans remain low compared to past recessions, it said.
“Some financial stress will persist in the near term, even as the economy recovers.”
RBNZ has cut the OCR from 5.5% to 3.75% since August last year.
Household consumption has been weak but should increase, supported by lower interest rates, the MPS said.
RBNZ noted that residential investment declined by 2% in the September quarter and previous periods were revised down in the latest GDP data, which pointed to greater weakness than had previously been measured.
Falling house prices and reduced housing demand had made development projects less viable.
Real Estate Institute data released on Wednesday showed its house price index fell 1.4% in the year ended January and is down 15.7% from the November 2021 peak.
“Residential investment is assumed to recover as lower interest rates and increasing house prices support demand for new building.”
The central bank noted that slower population growth as a result of slowing net migration is reducing both consumption growth and demand for housing.
However, it does expect net migration will pick up in about 18 months as the NZ labour market recovers.
RBNZ noted that although shorter-term mortgage rates have fallen since November, longer-term rates have moved slightly higher, largely because the NZ dollar has declined and US longer-term rates have increased.
But wholesale rates have fallen faster than deposit rates while mortgage rates have declined broadly in line with swap rates, putting downward pressure on bank margins, RBNZ said.
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