“That strategy has become much less effective as market mortgage rates rise ahead of any medium term [Official Cash Rate] increases.”
Despite the Official Cash Rate (OCR) remaining at 2.25% since November last year – and having not risen in three years – interest rates have been increasing on the back of rising wholesale funding costs, inflation expectations and geopolitical uncertainty.
Davidson said the increase in market rates was already influencing borrower behaviour.
Over the past six months, the two-year fixed rate has become the most popular term, accounting for 29% of new lending in March, according to Reserve Bank data.
In turn, the floating and short-term fixes popular while the OCR was falling from 5.5% had now become less popular.
“Borrowers are increasingly prioritising repayment certainty again as refinancing conditions become more uncertain,” Davidson said.
“Many households that previously focused on staying flexible are now weighing up whether rates could move higher over the next one to two years.”
Davidson said the loan repricing cycle could increasingly have an impact on the country’s broader economic activity.
“Higher mortgage costs reduce disposable income and place additional pressure on household spending at a time when economic conditions are already fragile,” he said.
Nathan Miglani, mortgage brokers Squirrel’s managing adviser – Christchurch and South Island, said he recommended borrowers refixed as soon as possible.
“We are proactively approaching every client who is up for renewal within the next two to three months … most of them are happy to pay a little bit of breakage cost to break [their mortgage] and fix for a little bit longer.”
Miglani said an example of someone borrowing $500,000 and moving from a two-year fixed rate of 4.99% to 5.39%, they would need to find an extra $75-$80 a fortnight in minimum repayments.
He said the Iran war had put a “handbrake on people’s confidence”.
“People are a lot more cautious with [the] cost of living, high fuel costs … and they are concerned.”