Kiwis rush to fix their loans

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.

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."

- Russell Blackstock of the Herald on Sunday

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