Big shift to floating mortgages as rate hikes draw near

A marked shift to floating and short-term rate mortgages by borrowers last year was flagged in KPMG's 2009 Financial Institutions Performance Survey as the central bank gets closer to hiking rates.  

Thursday, May 6th 2010, 6:07AM

Between 50% and 80% of borrowers preferred floating or six-month fixed rate mortgages, where there had previously been 80% of home loans in fixed mortgages, according to the FIPS report. About 575,000 loans, or 42% of all loans, are on floating rates, according to Reserve Bank data, compared to 463,000, or 34%, a year earlier.

"As the economy recovers and the RBNZ initiates an interest rate rise, via the official cash rate, the banks will be looking to reprice these and other variable rate lending assets," head of financial services Godfrey Boyce said in his report.

Investors are betting the Reserve Bank will hike rates by 195 basis points over the coming 12 months, according to the Overnight Investment Swap curve, after Governor Alan Bollard said he would begin tightening monetary policy over the coming months in his latest OCR review.

Banks' lending growth slowed to 2.7% last year as lenders shied away from riskier borrowers, and Reserve Bank data shows there was a 7.4% decline in the number of housing loan approvals in the year ended April 30, compared to the same period a year earlier. In the 13 weeks ended April 30, the number of loans was 29% lower the same timeframe in 2009.

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