Record Short-Term Mortgage Borrowing as Rate Cut Anticipation Rises

Surge in Six-Month Mortgages

Mortgage borrowers flocked to six-month fixed terms in May, setting a new record, as they anticipate interest rate cuts later this year. According to data released on Wednesday, July 10, 2024, many banks forecast the Reserve Bank will reduce the Official Cash Rate (OCR) by November, driven by a slowing economy, rising unemployment, and falling inflation.

Historical Highs in Short-Term Borrowing

The latest figures from the Reserve Bank of New Zealand (RBNZ) reveal that 17.1% of owner-occupiers opted for six-month fixed terms, a significant rise from last year's 3.4%. This trend indicates borrowers’ expectations of imminent rate cuts. Investor borrowing on six-month terms also increased, reaching 21.7% in May, up from 18.7% in April.

One-Year Fixed Terms Remain Popular

Despite the surge in short-term borrowing, one-year fixed terms remain the most popular among borrowers. For owner-occupiers, these accounted for 36.5% of new lending in May, though down from 39.4% in April. For investors, one-year terms constituted 40.2% of new lending, a decrease from 45% in April.

Overall Lending Trends

Total mortgage lending in May was $7.1 billion, marking an 18.5% increase from April and a 22.8% rise compared to the same month last year. The share of new residential lending on fixed interest rate terms rose slightly to 82.3%, up from 81.9% in April. Owner-occupier lending climbed to $5.2 billion, while investor mortgage lending increased to $1.8 billion.

Long-Term and Floating Terms

Long-term fixed terms remained relatively stable, with two-year fixed mortgages rising to 8.8% and three-year terms increasing to 3.1%. However, floating term loans for owner-occupiers decreased from 17.7% in April to 17.1% in May. For investors, the share of 18-month terms rose to 11.9%, while two-year fixed terms fell to 5.9%.

In commercial property lending, investment property loans dropped by $72 million to $473 million, while commercial property development loans surged by $86 million to $174 million. Conversely, residential property development loans saw a slight decline from $98 million in April to $96 million in May.

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