Competing Hard For Fixed Mortgage Market Share

Lending Institutions Competing Hard For Fixed Mortgage Market Share

Lending institutions appear to have taken the new Governor of the Reserve Bank’s first statement to heart with only one lender marginally moving its floating rate downwards during the past month.

According to the latest Mortgage Survey conducted by the Real Estate Institute of New Zealand this morning, most competition between lenders appears to be for medium term range fixed mortgages.

REINZ President, Graeme Woodley, said the decision by the Reserve Bank to leave the OCR unchanged late last month had clearly been taken to heed by lending institutions.

“It would appear lenders are taking advantage of the status quo at the moment. While Dr Bollard has announced increased flexibility in setting the Cash Rate, he has not moved to change it as yet.

“However, we believe, with the Official Cash Rate still sitting at 5.75 percent, there is still ample margin for lenders to move their floating rates downwards.”

Normally floating rates are fixed between 1.5 – 3 percent above the OCR. As at 9 am this morning, floating rates on offer ranged between 6.95 – 7.85 percent.

Mr Woodley said it is apparent most home buyers are now choosing to take the option of fixing their mortgages.

“Our survey shows lending institutions are competing hardest for market share in the two to three year fixed mortgage market.”

“There’s no doubt fixed rates do provide certainty for home buyers. Of course the advantage for lenders of providing fixed rates is also clear, as they are more likely to retain their hold on a customer by providing a mortgage over a fixed term period.

As at 9 am this morning, Tuesday 10 December, half of the 18 lending institutions surveyed had amended their three year fixed rate downwards, with rates sitting in a fairly tight band between 6.95 – 7.40 percent. Only one institution, a major lender, had moved its three year fixed rate up to 7.40 percent from the 7.30 percent recorded in November.

There was movement downwards in the two year fixed term market too, with seven lenders making adjustments to their rates on offer. However two lenders had moved their two year rates marginally upwards for this fixed term period.

Eight of the 14 lenders who offer five year fixed mortgage terms also dropped their rates during the month. These also sat in a tight band ranging between 7.45 – 7.85 percent.

Floating rates remain sitting at higher rates than medium to longer term fixed rates.

“Interestingly, the cost of longer term money is cheaper for home buyers than floating rates,” Mr Woodley said.

“However this anomaly begs the question: why should any borrower seek to obtain a floating rate at, say, anything up to 7.85 percent when they can fix a three year fixed mortgage at 6.95 percent?”