Mortgages on short-term rates surged again at the beginning of the year

Although fixed interest rates for mortgages are declining, borrowers still opted overwhelmingly for floating and short-term rates up to one year in January.

Tuesday, March 11th 2025, 8:25AM

by Sally Lindsay

Although fixed interest rates for mortgages are declining, borrowers still opted overwhelmingly for floating and short-term rates up to one year in January.

While new owner occupier lending dropped by 33.5% to $4.1bn in January, compared with December there was still a continued preference for shorter term lending.

Short-term rates surged in November, dropped back in December and then gained in popularity again in January, the latest RBNZ data show.
Of the new lending in January, the share to owner occupiers on floating and short-term rates topped 89.5%. Terms of 18 months and longer accounted for only 10.5% of the lending.

Of the rates, 31.8% of owner occupier mortgages were on floating rates, up from 23.5% in December and 30% were on six-month fixed rates, down from 38.1% in December. These were the most popular rates.

New lending on fixed one-year terms accounted for 27.7% of all new lending, down from 28.5% in December.

During the month just 4.9% of owner occupiers plumped for the two-year term, up from 4.5% in December.

The data comes from the RBNZ’s C71 series, which show the mortgage terms after they have actually been uplifted.

Investor mortgage lending dropped to $1.6 billion in January.

Floating terms accounted for 35.2% of new investor lending, up 10.3% from 24.8% in the previous month.

Lending rose for most terms except for six-month rates, which fell by 9.7% to 34.6%. In January 98.8% of new investor lending was on floating or at fixed two-year rates.

All the major banks now have the two-year rate at 4.99%, after Westpac initially offered a three-year rate at 4.99% but withdrew it after a fortnight and the other banks scrambled to match the rate.

Mortgage borrowers refixing this year are expected to flock to the two-year rate, which is at a market-leading low and in the past has been the most popular term.

Floating and short-term interest rates became popular at the beginning of last year as borrowers anticipated RBNZ cuts to the OCR, which now sits at 3.75%. Predictions are for another two or three cuts this year down to 3.25-3%.

Total monthly new residential lending amounted to $5.8 billion in January, down 34.1% from $8.9 billion in December, but up a whopping 44.5%, or $4 billion, on January last year, an unexpected surge.

The share of new lending on fixed interest rate terms dropped to 66.9%, down 9% from December.

Overall, there was $8.6 billion of new lending in January, down 37.7% from $13.8 billion in December. However, compared to January last year, the total of new lending was up by 35.3% from $6.4 billion.

Within commercial property lending, residential property development dropped by $51 million, or 32.3%, to $107 million; commercial property development declined by 34.5% to $38 million; and investment property sank by 55% percent to $448 million.

Tags: mortgages