Mortgage advisers say clients are fixing early and spreading rate risk
One borrower with four to five months left on a fixed rate has broken early and refixed for a longer term, accepting a small fee for certainty. Mortgage advisers say that kind of pre-emptive move is becoming common ahead of the official cash rate (OCR) decision from the Reserve Bank of New Zealand (RBNZ) on 28 October.
Most of the five advisers NZ Adviser spoke to said the decision itself is doing little to change client behaviour, because much of the expected increase is already built into lender pricing. ANZ, ASB, BNZ, and Westpac all expect a 25 basis point hike to 3%, after core inflation measures firmed in the September quarter. Borrowers are instead focused on the longer tightening cycle.
Refixing ahead of time, spreading the risk
Becs McCallum, director at Loan Market McCallum & Co. in Auckland, said the client who broke early wanted protection against further rises over the next year. After the swings of recent years, “clients simply do not want to take unnecessary gambles”, she said.
Dave Williams of Loan Market Tauranga books structuring meetings as soon as purchases go unconditional, so clients can secure a rate before settlement. He is also urging existing clients to refix at the earliest point their bank allows, which is up to 60 days out for most lenders.
Michael Anastasiadis, mortgage adviser at Bozinoff Mortgages, said most banks still offer six-month and one-year specials below 5%, but he expects that to change, with one lender already at 5.09% for a one-year term.
ASB has said fixed mortgage rates have already passed their lows for this cycle, with the two-year swap rate about 40 basis points higher since September.
Advisers broadly favour splitting loans across two-, three-, and four-year terms. Ollie Tomic, mortgage and commercial adviser at Vega Mortgages in the Waikato, said two-year terms appear to be the pick of the market right now, though the right structure depends on each borrower’s plans.
Investors hold and rework debt
With annual rental inflation at 0.2%, the lowest since 2000, according to ASB, few investors are rushing to sell. “None of the investors I have spoken to have indicated a desire to sell,” Anastasiadis said.
Tomic said some owners who bought between 2020 and 2022 face topping up $100 to $150 a week or selling at a loss, so he is restructuring debt where possible to help them hold. McCallum said landlords are focused on reducing debt, including considering selling non-performing properties.
Ryan Smuts, director at Kris Pedersen Mortgages in Takapuna, said his investor clients are both holding and buying. “A common investor approach is quite contrarian to the market,” he said.
First-home buyers press on, at their own pace
Despite a BNZ estimate that owning a median home costs 35% of household income, compared with 25% to rent, first-home buyers remain in the market. Williams said buyers already expect ownership to cost more, adding that “rent is still dead money”.
McCallum said first-home buyers who held back over the past three to six months are returning with stress-tested budgets and more realistic expectations. Tomic said more of his buyers are taking their time, expecting more listings over spring and summer.
Existing owners planning to move are more likely to sit tight for the next 12 to 24 months, McCallum said, while downsizers with substantial equity are active.
Asked for one message for clients this week, Tomic said: “My advice this week is simple: don’t panic.”
McCallum offered similar advice. “Don’t wait for the OCR headline to dictate your household finances,” she said.
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