Tamsyn Parker

Money Editor for NZ Herald

Rising mix and match mortgages

Increasingly savvy home-owners splitting mortgages into fixed and floating loans as rates start to rise, banks say.

Until recently, the most popular rate for those wanting to fix was the one-year rate. Photo / Greg Bowker
Until recently, the most popular rate for those wanting to fix was the one-year rate. Photo / Greg Bowker

More mortgage holders are opting to split their home loans into fixed and floating rate portions after the recent cash rate increase, say banks.

The Reserve Bank increased the official cash rate from 2.5 per cent to 2.75 per cent this month after years of holding it at a record low, prompting banks to increase their floating and short-term home loan rates.

Westpac head of retail banking Ian Blair said there had been a trend towards people fixing their mortgage rates in the last 12 months and the activity had increased in the last month or so.

"People began thinking about it more when they came back from their post-Christmas holiday."

Until recently, the most popular rate for those wanting to fix was the one-year rate but that had switched in the last week and data showed one, two and three-year fixed rates were now equally popular at the bank.

"A lot was going into the one-year fixed rate but now we are seeing customers spreading it."

Blair said a trend that had emerged since the last time rates rose was a decision to mix and match the floating and fixed rates.

He believed that was being driven by better products and people having a better degree of financial literacy than what they might have in the past.

It's a change that has also been noted at rival bank ASB. Shaun Drylie, general manager of products and strategy at ASB said people were opting for more partial fixed and floating splits.

"People are starting to box the field rather than putting it all on the nose."

Banks have seen their loan books heavily weighted towards floating mortgages in recent years, bucking the past trend of most lenders being on fixed loans.

In the past, around 70 to 80 per cent of bank mortgages were on fixed rates.

Blair said he had little doubt the market would return to where it was in the past with high levels of fixed-rate mortgages.

"We are not there yet ... but I think we will get back to levels we were at in the late 2000s."

That posed problems for the Reserve Bank as changes to the official cash rate typically took around 18 months to have an impact.

Blair said it was not for him to say if the Reserve Bank's policy would be effective, but fixed rates had already started moving up.

"Six months ago, people were able to get a one-year fixed rate in the late fours.

"Even if they come out of that fixed rate into another fixed rate there will be a jump."

Blair said very few people were choosing to fix on long-term rates a year ago.

Mark Brown, a fixed-interest fund manager at Harbour Asset Management, believes it will take at least six months before the full impact of the cash rate increase will be felt by mortgage holders.

Brown said that timeframe was based on a judgment of how people were feeling going into the increase.

"The economy is in such a good shape, people are confident about their jobs," he said. "I'm not sure it will change things a whole lot [straight away]."

Cash used to lure custom

Banks have ditched free electronic devices in favour of cash in a bid to attract new customers.

Ian Blair, head of retail banking at Westpac, said cashback offers had become popular across the banks since competition heated up after the ANZ/National bank merger.

The merger in 2012 sparked an advertising drive from ANZ's competitors, with offers of free TVs, mobile phones and tablets.

But cash appears to now be king with three of the major banks offering deals. Blair said ultimately people wanted to decide for themselves what the money was spent on.

Blair said mortgage holders had also got more savvy demanding better rates, features and flexibility.

"In years gone by home loans were quite homogenous - people didn't question what the rate was. Now there is a lot more discussion around the rate, features and flexibility."

- NZ Herald

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