The next few months could see a shock for some Kiwi household budgets as about 60% of existing mortgage fixed rates expire in the next 12 months. Many borrowers this time last year were fixing on the 12-month rate because this had proved to be the way to go over a cycle where interest rates were trending downwards.

Borrowers coming off these historically low interest rates will find an environment where inflation has already pushed rates significantly higher than where they had been and the likelihood they will trend higher means they are tipped to want to fix for a longer term.

If they take the option to fix now for say a three-year term it is already roughly double what they would have been fixing a 12-month rate at 12 months ago … and this is before the upcoming official cash rate review on February 23. With the financial markets pricing in us ending the year with a cash rate of 2.25%, this is significantly up on the current 0.75% setting and again likely to push borrowers to opt for more certainty in choosing the mid to longer-term rate.

Bank Pressure

There is a contrary view in that households will struggle with this especially at a time where the price of goods and services are also rising rapidly. If this results in dampening consumer spending too much it may put pressure back on the Reserve Bank from raising the cash rate as high as predicted.

Covid will continue to play a large part in this as how Omicron and any potential future variants are handled will ultimately play a big role in determining if the supply chain issues keep inflation high or instead are transitory.

One factor which is worth keeping a close eye on is how the inquiry into the CCCFA (Credit Contracts and Consumer Finance Act) is handled. This was rushed through at the back end of last year and is already all over the news with reports everywhere of “unintended consequences”.

It was introduced to protect vulnerable borrowers, but instead is being applied across the finance market and is causing massive issues in particular for those seeking mortgages as many applicants who were previously approved are finding they are now declined.

The loan conversion rates have already plummeted and the risk is if this is not remedied it could cause negative flow-on effects to the economy as SME businesses find it harder to access capital. If this continues to restrict lending the Reserve Bank may find it difficult to continue with hiking the cash rate

The interest rates specified in this table were accurate on 1901/2022. Interest rates are subject to change without notice. Different fees and charges apply to each loan depending on the mortgage lender. Seek expert advice to determine the mortgage lender that is right for you and your circumstances. A Disclosure Statement is available on request and free of charge. Data provided by tmmonline.nz