Longer term fixed interest rates slowly bite into floating terms
Two-year fixed mortgage rates are starting to slowly eat into the share of total lending by banks.
Tuesday, April 8th 2025, 8:37AM
by Sally Lindsay
Two-year fixed mortgage rates are starting to slowly eat into the share of total lending by banks.
Starting from a low base of 4.9% in January, the share of new lending on two-year fixed terms rose to 11.2%, or $451 million, in February as the OCR came down to 3.75% and is expected to drop to 3.25% next month.
While it is widely expected borrowers will begin to opt for the two-year rate as their mortgages roll off higher interest rates this year, the latest Reserve bank data shows most borrowers are still overwhelmingly electing floating rates.
Of new mortgages taken out in February nearly 40% were on floating rates. That was an 8% increase from 31.8% in January.
Owner-occupiers took out $1.607 billion on floating rates of the total $4.036 in mortgages lent to them.
The combination of floating and short-term interest rates up to one-year represented 79.2% of all new mortgages uplifted. The C71 data series differs from the RBNZ’s other mortgage data, which shows when borrowers have committed to mortgages rather than uplifting them.
Terms of 18 months and more accounted for a combined share of 20.8%.
The share of six-month fixed term lending dropped from 30% in January to 17.5%, while new lending on fixed one-year terms accounting for 21.8% of all new lending, down from 27.7% in January.
Lending to property investors on the two-year fixed term rate rose from 3.6%. in January to 11.6%.
In the month 95.7 percent of all investor new lending was on floating or at fixed rates up to two years.
Floating rates were still significantly favoured. These accounted for 43% of new mortgages, up from 35.1% in January.
Fixed six-month lending dropped by 18.2% to a 16.4% share.
New residential investor mortgage lending increased to $1.7 billion in February.
Overall total new residential lending was at $5.8 billion in February this year, up 26% from $4.6 billion in the same month last year.
The share of total new residential lending on fixed interest rate terms dropped to 58.7%, down 8% from January
Mayhem in the markets
Meanwhile, the market reaction to Trump’s global trade war has been swift.
Wholesale rates have moved decisively lower. Kiwi rates have gone from factoring in a terminal RBNZ cash rate of 3% to pricing in another two cuts to 2.5%.
Given the balance of risks, it’s perfectly reasonable, Jarrod Kerr, Kiwibank chief economist says.
He says while some commentators are warning of near term inflation and the need to hold interest rates higher, they are missing the big picture. 
“Tariffs hurt growth, global growth. And risks of recessions in our largest trading partners will force central bankers to cut (not hike).”
Kerr says with that in mind, the pivotal two-year swap rate, used by banks to price two-year fixed mortgage rates, has dropped from 3.45% to 3.10%.
Rates traders are placing small bets on a 50 basis points drop in the OCR tomorrow.
“And why not?” Kerr says. “The risks to the downside dominate, and at 3.75%, we are far from a neutral setting, with a possible need for a stimulatory setting.”
He says the mayhem in the financial markets has seen traders pricing in a terminal rate of 2.65%, down from 3% last week. “So another cut to 2.75% if fully priced, with a further 40% chance of a final cut to 2.5%. “That’s a massive move.”
| « Wild is the wind blowing through RBNZ | FMA will look at how long banks take to pass on OCR changes » |
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