Move to fixed home loan rates starts
The price war between banks in fixed-rate mortgages is starting to shift borrowers out of floating rates.
Sunday, July 1st 2012, 12:47PM
by Jenny Ruth The latest Reserve Bank figures show floating rate mortgages accounted for 61.7% of total mortgage lending by registered banks at the end of May, down from 63.1% at the end of April.
That's the first monthly decline since August last year when floating rate mortgages accounted for 56.3% of the total. August last year was clearly an aberration since before that the percentage of floating rate mortgages had been climbing since August 2009 when they accounted for 22.8% of the total.
The bulk of the shift is occurring into the one to two-year fixed-rates which accounted for 13.3% of the total in May, up from 11.8% in April and as low as 9.6% in February. Pre-GFC, two-year fixed-rate mortgages were the most popular.
Other central bank figures showed the price war has pushed mortgage approvals significantly higher but credit growth has barely lifted.
Household credit growth rose a seasonally adjusted 0.2% in May for a third successive month and an improvement of the zero to 0.1% growth seen in the previous seven months. However, growth in May 2007 was 1% and in May 2006 it was 1.1%.
Nick Tuffley, chief economist at ASB Bank, says the credit growth figures are net and are being subdued significantly by insurance payouts in Christchurch but the rebuilding is only just beginning.
Net mortgage lending was just 1.5% higher than in May last year but the $558 million growth in May was significantly up on April's $343 million growth.
Tuffley says the May growth is the strongest since October 2009. The indications are June will be a strong lending month too.
There were 7,756 mortgages approved in the week ended June 22 and approvals in the 13 weeks ended June 22 were 27.6% higher than in the same 13 weeks of last year.
Year-on-year growth on this basis has been above 20% since the week ended May 4 when it was 20.8% and the rate has accelerated every week since then.
However, Chris Green at First NZ Capital says this improvement may not last because consumer confidence is coming off the boil.
Clearly boosted by those Christchurch insurance payouts, retail deposits were up 8.7% in May compared with May last year, up from the 7.6% annual increase in April.
Back in 2010, annual growth rates in term deposits ranged from as low as 1.3% in February up to 5.9% in December.
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The OCR ain't going anywhere
The new Reserve Bank governor, Graeme Wheeler, predicts that the official cash rate won't by going anywhere until 2014.
This is clear from the 90-day bank bill forecast graph in the December Monetary Policy Statement. It shows clearly how over the past year forecast increases kept getting pushed down each quarter.
A year ago the bank was predicting the 90-day bill rate would be up at 4.00% by March 2014. That forecast was wound back to 3.3% in March, 3.2% three months later and is now down at 2.8%.
The good news for borrowers is that, asssuming things pan out as forecast, then home loan rates aren't likely to be going up any time soon either.
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