-
Source: Thinkstock.com -
Related
New figures show a dramatic increase in the numbers of Kiwis moving to floating and short term mortgages in the last two years.
Reserve Bank stats show the value of mortgages on floating rates has trebled from $18 billion in 2008 to $57 billion by May 2010.
Overall, the total amount held on mortgages has gone up - from $149 billion in 2008 to $164 billion two years later. But significantly a huge 69% of the total is now floating or fixed for 12 months for less.
Back in 2008, less than half was on short-term or floating rates.
TVNZ Business Editor Corin Dann said a swing to floating was expected given the cheaper rates offered but the extent of the switch is interesting as traditionally Kiwis have favoured the certainty of longer fixed rates.
Dann said the change means moves in the Official Cash Rate will be much more closely watched by New Zealanders.
"Now when the Reserve Bank hikes it has a much stronger impact as three times as many Kiwi households will be almost immediately affected by a rate increase. It makes the OCR a much more powerful tool," he said.
That power may mean that the pace of OCR hikes and the extent of the cycle could be slower and shorter than previously expected, Dann said.
However, it could also mean monetary policy could start to have more political implications for government and voters.
"If the trend to floating continues into next year, which is not guaranteed, then the OCR could become more politically sensitive.
"In Australia floating has always been popular which has made hikes during election campaigns a sensitive issue. Recently the RBA re-iterated it would hike rates during the current campaign if inflation pressures warranted it" Dann said.
The RBNZ increased the OCR by 25 basis points in June after holding rates at 2.5% for a year. The next review is due tomorrow and is widely tipped to be another 25 basis point increase.
Longer rates affected
The move away from fixing rates may explain why the major banks have recently cut their one and two-year rates to around 7%. Kiwibank lead the cut, taking almost a third of a percent off its rate in June to bring it down to 6.95%.
The dollar value of two-year fixed mortgages has dropped from $38 billion to $33 billion while longer term rates - three, four and five year rates - are attracting significantly less people.
Only $757 million is now on a five-year rate compared to $6.4 billion in May 2008.
Kiwibank has introduced a capped floating rate which guaranteed its floating rate would stay under 6.5% for 12 months. However, it has a fee of $250.
Capped floating rate amounts will now be tracked by the Reserve Bank in their monthly analysis.
As of May 2010, there were 1,345,222 mortgages held on residential property in New Zealand.
Go to the business page to vote in our poll on whether the RBNZ should raise the OCR again. And watch Breakfast on TV ONE tomorrow for their take on the move to floating rates.
