Russell Blackstock

Russell Blackstock is a senior reporter at the Herald on Sunday.

Kiwis rush to fix their loans

Mortgagors move away from floating as OCR rises again.

Simon Bragg and his wife Sandy changed to a fixed rate mortgage ahead of the OCR hike. Photo / Jason Dorday
Simon Bragg and his wife Sandy changed to a fixed rate mortgage ahead of the OCR hike. Photo / Jason Dorday

Homeowners are rushing to fix their mortgage interest rates after the second cash rate increase in as many months.

New Zealand's five biggest banks - BNZ, Westpac, ANZ, Kiwibank and ASB - report a "significant" lift in fixed mortgage deals since the OCR hike in March.

Further rises are likely after Reserve Bank Governor Graeme Wheeler lifted the OCR 25 basis points to 3 per cent on Thursday.

In recent years about 75 per cent of homeowners have opted for floating mortgages because of low interest rates. But figures show, on average, Kiwi banks now have about 61 per cent of residential borrowers on fixed deals and just 39 per cent on floating deals. The last time that happened was in August 2010.

The ASB and Kiwibank report their mortgage ratios recently flipped to 65 per cent of residential customers on fixed deals and 35 per cent on floating deals, a reversal from just two years ago.

"Following the latest OCR rise, we expect the figure to increase to 70 per cent of people opting for fixed rates," Bruce Thompson, Kiwibank communications manager, said.

"We anticipate people will digest the latest OCR rates and many will then decide to fix rather than float, or have a combination of both to give them a level of certainty about repayments."

The most popular fixed-rate deals are for mortgages of between two and four years, Thompson said.
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However, mortgage broker John Bolton, of Squirrel, urged people not to panic. "People rush to fix because they fear interest rates will suddenly soar and they won't be able to pay the mortgage if on a variable rate," he said.

"The last time we had an OCR of 4.75 per cent was in 2003 and the housing rate then stayed at just under 6 per cent, so I don't see mortgage rates suddenly leaping to 8 per cent or more soon."

Current floating rates are between 5.74 per cent and 6.25 per cent. Rates for two-year fixed deals range from 6.19 to 6.49 per cent.

Campbell Hastie from Auckland-based first-home buyer specialists Go2Guys warned people to shop around before switching. "Clients realise they cannot avoid the impact of rising rates," he said.

"However, they can manage the impact. A useful way of doing this is to split their lending into two or more pieces, with each piece on a different fixed term. This way the impact of rising rates is spread, often with a 12-month gap between giving time to adjust."

Savings should pay for an overseas holiday

Simon Bragg fixed his mortgage this week ahead of the expected OCR rise, and hopes the savings will pay for a holiday.

For the past four years, Bragg had a floating rate of about 5.7 per cent on a $175,000 home loan with Sovereign.

But before Thursday's OCR hike, he and his wife Sandy shifted to a fixed rate of 5.8 per cent for 18 months on their three-bedroom home in Stanmore Bay, North Auckland.

"If the OCR keeps rising, staying on the variable rate could cost us between $3000 and $4000 extra over the next year and a half," Simon, 43, says. "We have been planning an overseas holiday, so the extra cash will come in handy.

"The trend for rising interest rates is a concern and we wanted to have some peace of mind about what our regular payments would be.

"I think we have done the right thing at the right time."

- Herald on Sunday

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