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Summarised by Centrist
A record surge in mortgage switching in December appears to indicate borrowers moving quickly as it becomes clear that the interest rate-cutting cycle has run its course.
Pressure is now building in the opposite direction.
Writing for The NZ Herald, Jenée Tibshraeny reports that a “whopping $5.8 billion of mortgage debt was shifted between banks” in December, more than double the previous monthly record. Banks were offering cashbacks of “up to $30,000” late last year, helping drive the spike.
Cotality chief property economist Kelvin Davidson says the surge was “notable, but unsurprising, given how much banks had been competing on cashbacks”. He adds that borrowers had made it easier for themselves to move by putting more of their loans on floating and shorter-term fixed rates.
Yet, in November, “an unusually high 49.4% of new residential mortgage lending was on floating terms”, a level that suggests flexibility was being prioritised over certainty. Floating loans can be moved any time, with no penalty.
Borrowers can only switch banks if they move their entire mortgage, making floating or short-term loans a practical prerequisite for jumping ship.
Davidson argues that mortgage rates being “near their trough in this interest rate cycle in December didn’t affect the amount of bank switching.” However, longer-term mortgage rates “started rising in mid-December”, after wholesale markets were “surprised by how definitive the Reserve Bank was about its November OCR cut likely being the last in this cycle”.
Tibshraeny notes, “There is now more upward than downward pressure on mortgage rates.”
Measures taken by the government and the Reserve Bank of New Zealand to improve banking competition are described as unlikely to have influenced the December spike.
