Mortgage holders bet on the Reserve Bank cutting the OCR sooner than it says it will

Six-month mortgage terms are rising in popularity. Photo / Bevan Conley

A decent portion of mortgage holders are continuing to bet on interest rates falling this year – sooner than projected by the Reserve Bank (RBNZ).

In May, just over 17% of banks’ new mortgage lending to owner-occupiers, and 22% of lending to investors, was fixed for six months.

While fixing for a year continued to be by far the most common option, new RBNZ data shows there was a notable rise in the popularity of the six-month term during the first part of the year.

A borrower, who fixed their mortgage for six months in May, would hope to see interest rates low enough by November to justify the higher rate they would’ve locked in to enjoy the benefit of securing an interest rate for a relatively short period of time.

Someone who opted for the average special six-month interest rate in May would’ve got a rate of 7.26%, whereas someone who went for the average special two-year rate would’ve secured a lower rate of 6.75%.

Some economists reckon inflation will have fallen enough for the RBNZ to justify cutting the Official Cash Rate (OCR) by November. Others see the RBNZ making its first move in February.

The RBNZ, however, only has its first OCR cut pencilled in for around September next year, according to its latest forecasts published in late May.

In May, the portion of new lending fixed for a year fell to 37% for owner-occupiers and 40% for investors.

Portion of mortgage lending fixed at selected terms. Photo / RBNZ

Portion of mortgage lending fixed at selected terms. Photo / RBNZ

The share of new lending fixed for 18 months rose to 17% for owner-occupiers and 12% for investors.

Meanwhile, the share of lending fixed for two years was steady at just under 9% for owner-occupiers and fell to 6% for investors.

With inflation proving to be very sticky in New Zealand, the OCR has remained elevated for longer than broadly expected.

A large number of borrowers have accordingly been caught short over the past year or so, betting on the OCR falling sooner than it has by fixing their mortgages at short durations.

While mortgage rates have come off their peaks, tough talk in the RBNZ’s hawkish May Monetary Policy Statement has kept them propped up.

CoreLogic NZ head of research Nick Goodall believed the RBNZ would ease the OCR sooner than it said it would, given the impact weakness in the economy is having on inflation.

He believed it would be wary of not giving the market a reason to get ahead of itself by signalling a turn-around too soon. But much like other economists and market participants, Goodall couldn’t see the RBNZ waiting until mid to late next year before cutting the OCR.

The RBNZ’s Monetary Policy Committee is expected to keep the OCR at 5.5 per cent when it reviews it today.

The update will be released at 2pm. The next, more fulsome, Monetary Policy Statement will be released on August 14.

Jenee Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary Press Gallery. She specialises in government and Reserve Bank policymaking, economics and banking.