'Rate wars' could see borrowers go long again
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20/03/2025. 13:59
KoreaPost
As more new and existing borrowers begin to benefit from lower mortgage rates following the Reserve Bank of New Zealand's (RBNZ) cutting cycle, market turnover levels and property values should continue to trend higher in the coming months.
The 'Chart of the Month' from CoreLogic NZ's March Housing Chart Pack looks at RBNZ data, revealing that, in January, only 10% of new borrowers across the country opted for fixed terms longer than 12 months.
In other words, 90% of borrowers chose a floating or short-fixed rate (6-12 months).
CoreLogic NZ Chief Property Economist Kelvin Davidson said while loans fixed for longer than 12 months remained unpopular in January, the recent emergence of 'rate wars' suggests borrowing behaviour will be something to watch closely.
"Around 71% of NZ's existing mortgages by value are currently fixed but due to reprice onto a new mortgage rate soon, and another 12% is floating. Over the past two-to-three years, these repricing events have generally meant a higher mortgage rate for borrowers.
"However, that situation has now turned around again, and with rate wars recently emerging among lenders offering lower 2-3 year fixed rates, we could start to see a shift back towards them pretty shortly.
"Both for new borrowers and those repricing existing loans. In other words, the fixation with short-fixes might be about to come to an end," Mr Davidson said.
"However, that situation has now turned around again, and with rate wars recently emerging among lenders offering lower 2-3 year fixed rates, we could start to see a shift back towards them pretty shortly.
"Both for new borrowers and those repricing existing loans. In other words, the fixation with short-fixes might be about to come to an end," Mr Davidson said.
He added that loan sizes remain relatively low in compared to incomes, meaning debt-to-income (DTI) ratios are under control.
Mr Davidson emphasised that the market is also unlikely to see an immediate switch in power from buyers to sellers.
"The stock of listings available to purchase is currently at its highest level for this time of year since at least 2018, which means buyers can still take their time to try and achieve a deal in their favour."
"For investors, lower mortgage rates will make new property purchases more affordable, which have required significant top-ups from other income sources over the past couple of years."
Overall, Mr Davidson predicts that 2025 is likely to see a subdued upturn in the property market.
"We're just at the beginning of seeing the first clear signs that the downturn in property values has come to an end."
"The CoreLogic Home Value Index recorded a 0.3% rise in February, with Christchurch and Dunedin both increasing by 0.6%, and even the previously weak Wellington area seeing a mild 0.1% lift."
"Nationally, property values could rise further by around 5% this year," he concluded.
"For investors, lower mortgage rates will make new property purchases more affordable, which have required significant top-ups from other income sources over the past couple of years."
Overall, Mr Davidson predicts that 2025 is likely to see a subdued upturn in the property market.
"We're just at the beginning of seeing the first clear signs that the downturn in property values has come to an end."
"The CoreLogic Home Value Index recorded a 0.3% rise in February, with Christchurch and Dunedin both increasing by 0.6%, and even the previously weak Wellington area seeing a mild 0.1% lift."
"Nationally, property values could rise further by around 5% this year," he concluded.
Highlights from the March 2025 Housing Chart Pack include:
- New Zealand's residential real estate market is worth a combined $1.64 trillion.
- The CoreLogic Home Value Index shows property values across New Zealand increased 0.3% in the month of February. Over the three months to February, there was a minor 0.1% rise in median property values across NZ.
- The total sales count over the 12 months to March is 82,757.
- Total listings on the market were 31,838 in February to be 26% up on the five-year average. Total listing counts in Northland and Waikato are lower than last year, but Canterbury, Wellington, Otago, and Gisborne have seen sizeable increases of 10% and more.
- Rental market conditions remain in favour of tenants, as net migration eases down from its very high peak, and the stock of available rental listings on the market stays elevated.
- Gross rental yields now stand at 3.9%, which Is the highest level since mid-2015.
- Inflation is firmly back in the 1–3% target range, and with February's 0.5% cut, further OCR reductions seem likely in the coming months.
- The Chart of the Month shows that just 10% of new borrowers in January nationwide chose fixed terms longer than 12 months, while 90% opted for floating or short-term fixed rates (6-12 months). This borrowing behaviour will be worth monitoring as banks potentially lower key rates a little further in the coming months.
Download and subscribe to the monthly CoreLogic Housing Chart Pack at corelogic.co.nz/news-research/reports/housing-chart-pack.
ENDS
Source: CoreLogic NZ